ML17138A784
ML17138A784 | |
Person / Time | |
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Site: | Susquehanna ![]() |
Issue date: | 12/31/1978 |
From: | CURTIS N W PENNSYLVANIA POWER & LIGHT CO. |
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NUDOCS 7909140327 | |
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{{#Wiki_filter:QooQog]fLECTRICCOOPERATIVE,INC.'3iggo)i'F909>40ZZ7 SUSQUEHANNAUP-DATEOnJanuary10,<<1978,AlleghenyElectricCooperative,Inc.became10%ownersofPP&L'sSusquehannaNuclearplantnearBerwick.Constructionoftheplantisabouttwo-thirdscomplete.However,commercialoperationsofthetwo1,050,000kilowattunitswillbedelayedforapproximatelysixmonths,mainlyduetotheworkloadoftheNuclearRegulatoryCommission{NRC)asaresultoftheTMIincident.ThenewtargetdateforUnitIisJuly,1981.'orkontheoutershellofthecoolingtowerforUnit1hasresumed.ConstructionstoppedApril27,1978,afterascaffoldcollapsedonasimilartowerinWestVirginiakilling51workersfromanothercompany.TheSusquehannacoolingtowerwasonly20feetshortofitsfinalheightof540feetwhenthisoccurred.A15volumeFinalSafetyAnalysisReportandathreevolumeEnvironmentalReportwasfiledwiththeNRCaspartofthelicenseapplicationtooperatetheSusquehannaplant.Thistook90,000hoursofpreparationtimeandincludedhundredsofitems,suchastheplant'simpactonemployment,housing,taxes,zoning,agriculture,recreation,transportation,water,air,vegetation,animals,soilandthereactionofplantneighborstothesoundsofconstruction.AspartoftheSusquehannaproject,a340-acrenaturalpark,SusquehannaRiverlands,isbeingbuiltneartheplantsiteasawildlifepreserve,withobservationareastoenablevisitorstoviewwildlifecloseathand.InJune,1978,theSusquehannaEnergyInformationCenter,whichisalsobuiltneartheplantsite,wasopenedtothepublic.TheInformationCenterexplains,inlayman'slanguage,hownuclearfissionisusedtocreatesteamwhich,inturn,isusedtopowertheturbine-generator.Thecenterincludesmanyinterestingenergyexhibitswithemphasisonnuclearpower. PRESIIDENT'SREPORYAnadequatesupplyofenergyisextremelyimportantforallofustocontinuetoliveaswedo.Atotallackofallformsofenergyisnotarealisticprospect.Thereisarealisticprospectofdiminishingsupplythatwillcreaterealproblemsinsomeareas.ItisAllegheny'sresponsibilitytoseethatallitsmembershaveanadequatesupplyofelectricityforthefutureatthelowestpossiblecosttotheconsumer.Toaccomplishthis,Alleghenyisworkingtowardowningalargprpercentageoftheirowngenerationandtransmissionfacilitiesalongwiththeutilizationofoneofthearea'srenewableresource...ourfallingwaters...togenerateelectricity.Todothis,wearepresentlytryingtogetauthorizationfortheU.S.ArmyCorpsofEngineershydroprojectatRaystownDamnearHuntingdon.Raystownwouldhelpcutthecostofpurchasingexpensivepeakingpowerwhichiscurrentlygeneratedbyveryexpensivenaturalgasandoil-firedgenerators.Wehavealsocompletedstudiesonthefeasibilityofbuildingalow-headhydroprojectatanexistingdamsitewhichisnowunderconsiderationatREA.Alongwiththis,Alleghenyisstudyingthepossibilityofjointownershipoftwo400MWanthracite-firedgeneratingunits.Thishardcoal,lowinpollutantsisfoundinsufficientquantitiesinthenortheastareaofPennsylvania.Ifthesecoal-firedunitsaredeveloped,theywouldhelpstimulatethelocaleconomyaswellasprovidegenerationforourfutureneeds.Atthesametime,itmakesgoodsensethatwemakeeveryeffortpossibletoincreaseourefficiencyofoperationsandstretchoutwhatresourceswehavetodaysothattheywillmeetourneedsjustaslongaspossiblethrough"loadmanagement."Loadmanagementisnotapipedream.Itisatested,triedandprovenmeansofimprovingtheefficiencyofelectricsystemswhichwewillbeutilizingsoon.Utilitiesmustbuildfacilitiestomeetpeakdemandofalloftheirconsumersanditmakesgoodsensethatifwecanreducethatpeakbyspreadingitoutovermorehoursoftheday,everyonewillgain.Thesearetryingtimesand'eachyearourworkbecomesmorecomplexanddifficult.Onlybyworkingtogetherinthetruecooperativespirit,canwebringourconsumersanadequatesupplyofelectricenergyforthefutureatthelowestpossiblecost.Withthemembersunderstandingandsupport,wecanbeassuredofsuccess. AILLEGHENYBOoD~IRDoQFDolllREC70oBSPRESIDENTJimHendersonSussexVICEPRESIDENTSECRETARYTREASURERMyronLudwickWarrenJohnAnstadtSullivanRobertSterrettCentralBOARDMEMBERSHarrisHornAdamsDennisShafferBedfordJohnDrakeClaverackBenjaminSlickNewEnterpriseA.D.StainbrookNorthwesternHiramWalkerSomersetClairD.ButerbaughSouthwestCentral~l/UoydDugan,Sr.Tri-County,JRobertELeonardUnitedDonHillValley Myreportthisyearisdevotedtothe"leadership"responsibilitiesthathavebeenthrustuponallPowerSupplyCooperativesasaresultofournation'scrisis.Thelargestproblemfacingtheaveragefamilytodayistheconstantlyincreasingcostofenergy.Iamreferringtoallformsofenergyincludinggasoline,otherpetroleumfuels,coal,uraniumand,ofcourse,electricity.Withlonglinesatthegaspump,thepublicisfinallyconvincedofanenergycrisis.Ifnewgenerationisdelayedandwehavebrownouts,I'msurealldoubtswillvanish.Therecent30%increaseingasolinepricesprovesthatenergyisthelargestbudgetitem.Energyconservation,therefore,becomesofgreaterimportance.AveryimportantadditiontoAllegheny'sstaffwastherecentemploymentofanEnergyAdvisortodirectourEnergyConservationProgram.OurenergyconservationvanisontheroadhelpingAllegheny'sMemberSystemsperforminformationalandeducationalprogramsonhowtoconserveenergy.IamhappytoreportthatAlleghenyhasdemonstrateditsleadershippositioninpromisingfullandcompletecooperationwithREAAdministrator,RobertFeragen'srequestforallpowersupplycooperativestoparticipateinresearchanddevelopmentof"alternate"sourcesofenergy.Weareactivelyparticipatinginwindenergydevelopmentandgenerationusingmethanegasfromcoalmines.Theamountofmethanegasfromcoalminesthatisbeingwastedstaggersyourimagination.Alleghenycontinuestostudythedevelopmentofhydro-electricprojects.Anotherleadershipareais"joint-action".Allegheny,incooperationwiththePennsylvaniaMunicipalElectricAssociation(PMEA),willsoonintroducewhatiscalled"Joint-Action/Joint-AgencyLegislation"intheGeneralAssembly.Thiswillallowmunicipalutilitiestojointogetherwithotherutilitiestoachieveeconomyofscaleinpowersupplyprograms.AsourceoffuelforgenerationnowappearstobePennsylvania'santhracitecoalreserves.TherecentactionbytheEnvironmentalProtectionAgencytoeliminatescrubberrequirementsonanthracite-fueledplantsisatremendousstepinusingthisfueltogenerateelectricity.Wearepresentlystudyingthispossibility.Inconclusion,IexpressmymostsincerethanksandappreciationtoallAlleghenyDirectors,Managersandemployeesformaking1978ayearofprogressandgivingusthesupporttocontinueour"leadership"responsibilitiesaswelookatthefuture. TheAlleghenyElectricCooperative,Inc.stillfacesthemostseriouscrisisofitshistorybythepotentiallossofitsonlylow-costpowersourcefromtheNiagaraPowerProjectofthePowerAuthorityoftheStateofNewYork.In1977,anewtaxonout-of-state.utilitieswasenacted.Itaddsa4.5%GrossReceiptsTaxonexportelectricity.TheNewYorkStatelegislaturereactedbyadoptingaresolutionmemorializingGovernorCareyofNewYorktonotrenewtheAlleghenycontractuntilthePennsylvanialegislaturetookactiontorepealthistax.Atpresenttime,Alleghenyisoperatingonaday-to-daysupplycontractextension.ThelossofthisPASNYpowertoourfourteenruralelectriccooperatives,wouldhaveastaggeringeffectonourruralconsumersaddingS100-$200peryeartotheirelectricbills.Increasesinelectriccostsforpeoplewhoareleastabletoaffordthem.StateRepresentativeDavidS.Hayes,hasintroducedlegislation(HouseBill852),thatasksfortherepealofthisGrossReceiptsTax.StaffmembersfromAlleghenyandthemember-cooperativesareworkingdayandnightwiththeStatelegislaturetoeffectuatethesuccessfulrepealofthisdiscriminatorytax.ASeptembervoteisexpected,onthebill. REVIEWOFPOWERCOSTSAsofDecember31,1978,Allegheny'saveragepurchasedpowercostfromourfivepowersuppliersreached20.12Mills/KWHor2.012C/KWH.Lastyear,Allegheny'saveragecostreached20.11Mills/KWH.Atfirstglance,itappearsthataveragecostsremainedconstantforthe12monthperiodof1978.However,thatisnotentirelythecase.Totalcostdollars'osefrom$31,124,700.43in1977to$32,497,504.81in1978.Thisrepresentsanincreaseof$1,372,804.38or4.4%inpurchasedpowercosts.Coupledwiththisincreaseincost,Allegheny'stotalsystemspowerrequirementsincreasedfrom1,547,343,211KWHin1977to1,615,219,722KWHin1978-anincreaseof67,876,511KWHor4.4%.Mathematically,eventhoughpurchasedpowercostsrose,averagecostsremainedrelativelyconstantfortheyear.InconjunctionwithAllegheny'saveragecostofpurchasedpower,thecostofwholesalepowerpurchasedbyeachofourmembercooperativesfromAlleghenyincreasedfrom20.93Mills/KWHin1977toanaverageof21.95Mills/KWHin1978-anincreaseof1.02Mills.Intotaldollars,themembercooperativespaidatotalof$35,459,816.11ascomparedto$32,383,249.22in1977.Thisrepresentsanincreaseof$3,076,566.89or9.5%duringtheyear.Ofthistotalincrease,44.6%wasadirectresultofincreasedpowercostsincurredbyAlleghenyandtheremaining55.4%wasduetoincreasedrevenuerequirementswhichAlleghenyneededtofundanumberoffuturepowersupplyprojects,mainlyURADCOwhichisthefuelfortheSusquehannaSteamElectricStation,increasedengineeringandlegalfees,andotherboard-approved,budget-relateditemssuchasthehydrostudies,etc.During1978,Allegheny'stotalpurchasedpowercostrepresented91.6%ofourtotaloperatingrevenue.FortunatelyforAlleghenyandeachofourmembercooperatives,the130megawattsoffirmhydropowerandassociatedenergywhichwepurchasefromthePowerAuthorityoftheStateofNewYorkwasstillavailablefortheentireyear.Thispurchaseofclean,dependable,low-costhydropowerfromthePowerAuthority,savedAlleghenyatotalof$14,109,247.93duringtheyear.AnylossorreductionofthisvaluableenergyresourcewouldbedisastrousfortheruralelectriccooperativesthroughoutPennsylvaniaandNewJersey.Turningtocurrentrate-relatedmatters,Allegheny'spolicyisandhasalwaysbeen,thatanycashrefundreceivedfromoneofourpowersuppliersasaresultofratecasesbeforetheFederalEnergyRegulatoryCommission(FERC),willberefundedinitsentirety,plusanyinterest,tothemembercooperatives.In1978,Alleghenyrefunded$109,065.19tothemembersasaresultofasettlementagreementreachedwithJerseyCentralPower5LightCo.Also,Alleghenyhadplannedtorefundanadditional$1,446,103.17becauseofanFERCdecisionrelatingtocasesdealingwithPennsylvaniaElectricCompanyandMetropolitanEdison.ThismoneywasnotrefundedtothemembercooperativesbecausebothofthesecompaniesappealedtheFERCdecisionintheUnitedStatesCourtotAppeals.Fortunately,Alleghenywasabletowinbothcasesbeforethecourtandthisratherlargerefundwillnowbemadetothemembercooperativesatthe1979SummerMeeting.AsidefrompurchasesmadefromthePowerAuthorityoftheStateofNewYork,eachofAllegheny'sfourwholesalepowersuppliersfiledwholesalerateincreasesbeforetheFERCin1978.PresentestimatesarethatthePenelecincreaseamountstoapproximately$5.6millionor24.7%andincreasesouraveragecostfromPenelecfrom33.4Mills/KWHtoanestimated41.3Mills/KWH.TheMet-Edincreaseamountstoapproximately$1.1millionor31%andincreasesaveragecostfromMet-Edfrom36.2Mills/KWHtoanestimated45.8Mills/KWH.Smallincomparison,theWestPennincreaseamountstoonly$42,000or1.2%andincreasesWestPenn'scostfrom22.41Mills/KWHtoapproximately22.69Mills/KWH.TheJerseyCentralincreaseamountstoapproximately$548,000or22.1%andincreasesaverageJerseyCentralcostsfrom28.08Mills/KWHtoapproximately38.0Mills/KWH.Intotal,theresultofthesefourmajorrateincreaseswillcauseAllegheny'stotalpurchasedpowercoststoincreasesome$7.2millionorbyapproximately20%.Averagecostisexpectedtoincreasefrom20.12Mills/KWHtoapproximately25Mills/KWH.Itappearsthatthedaysofcheapelectricalenergyaregone.Fortunately,throughtheeffortsofAllegheny'sspecialcounselWilliamC.Wise,SouthernEngineeringCompanyofGeorgia,andtheAlleghenystaff;eachofthesemajorrateincreaseswerecontestedbeforetheFederalEnergyRegulatoryCommissionandafullfive-monthsuspensionwasorderedinallcases.Infact,theminimalWestPennincreasewassettledwithnoincreasewhatsoevertoAllegheny.Hopefully,oncethePennsylvaniaElectricCompany,MetropolitanEdisonCompanyandJerseyCentralPower&LightCompanycasescomebeforetheCommissionforfurtherreviewanddebate,Alleghenywillsucceedinreducingtheincreasesconsiderably.WeareconvincedthattheunfortunateincidentattheThreeMileIslandNuclearGeneratingFacilitywillplayamajorroleintheseratecasediscussions.Nextyear'sAnnualReportwillhopefully,onceagain,announceadditionalrefundstoourmembercooperatives.Keepingthepriceofelectricity(ourmostdependableandeconomicalresource)reasonable,hasalwaysbeenoneofAllegheny'sprimaryfunctionsfortheultimatemember-consumersthroughoutPennsylvaniaandNewJersey. WilliamF.MatsonExecutiveVicePresidentandGeneralManagerPaulN.TetherowAssistantGeneralManagerC.DonaldBlackburnOfficeManagerWilliamE.MowattGeneralCounsellf[~[)~~,l!IIIIII%~lijlI>>'l!IIIIII!II'obertHornCoordinatorJobTrainingandSafetyWilliamLoganAdministrativeAssistantandLegislativeRepresentativeSTP~,IFIFAnthonyAdonizioResearchAssistantAssistantGeneralCounsel!!!Ifll!!!IIIllllHllllllllllUlllllllllllIll~h~iaiaIIIIIIIIIIIIIIII<"IWl~!!!!!!!!!!~gl!Illll!JII1I!llfllllllllllll,'",,,~.@~ll!!IIIIIIIIIIIIIIIIIIIIII"III<(CharleenBeachlerTypistGeorgeBlackPrintingSpecialistMaryJaneBraniganCentralFileClerkandTypistElizabethBrownGraphicArtistTeannaByertsProductionAssistantPatGiftExecutiveSecretaryJanIvanoffEngineeringAideRobertaIVlitchellPhototypesetterThuHuongNguyenBookkeeperRichardOsborneStaffEngineerPatPotteigerSecretaryStellaRoadcapBookkeeperWilliamSarantakasJobTrainingandSafetyInstructorEdStevensAccountantII"'atriciaStevensPENNLINESEditorialAssistantandSecretaryGinnySwainstonSecretaryGaryWoblerEnergyAdvisorJosephZulloStaffEngineer 8Fil8I2llC[]GoVatellCGDPer8tiveSt8@stics-'8978MemberCo-opAdamsBedfordCentralClaverackNewEnterpriseNorthwesteinSomersetSouthwestCentralSullivanSussexTri-County:UnitedValleyWarrenTOTALTotalSalesofElectricEnergys7,598,710.202,645,441.196,284,197.005,159,503.001,065,233.006,773,057.004,815,313.647,066,408.001,437,733;162,838.423.004,647,792.005,153,236.005,620,742.001,851,577.00$62,957,366.19TotalCostofElectricServices7,073,452.752,509,251.605,953,551.004,829,388.001,038,882.006,269,110.004,403,008.376,392,528.001,338,698.073,110,544.004,447,837.004,944,890.005,300,776.001,695,377.00$59,307,293.79TotalCostofPurchasedPowers4,299,792.541,630,044.243,412,779.132,900,847.73679,850.023,845,061003,028,280.224,321,954.69820,758.331,608,605.172,412,767.882,494,753.093,145,237.85859,084.22$35,459,816.11TotalUtilityPlants20,446,658.316,790,351.3614,194,819.0014,150,280.001,645,979.0016,357,390.0011,847,655.6014344~.003,646,476.677,947,149.0515,919,638.0016,643,915.0015,763,613.006,307,380.00$166,393,242.99MemberCooperativeAdamsBedfordCentralClaverackNewEnterprise.NorthwesternSomersetSouthwestCentralSullivanSussexTri-CountyUnitedValleyWarrenTOTALNumberofConsumers14,7106,23619,05111,3902,27813,8838,76615,8204,0826,86613,02713,76613,3847,478150,737,MilesofLine2,0971,0092,7172,1512502,1501,7122,0267113822,4842,4761,97994123,085ConsumersPerMileofLine7.06.27.05.39.16.55,17.85.718.05.25.66.87.96.5TotalKWHPurchased195,161,30074,893,200156,797.000131,816,00530,758,000176,572,768134,808,600199,412,55037,448,04473,420,000108,488,978113,516,150143,546,03038,581,0331,615,219,658AnnualPeakDemand53,21118,67833,94730,6217,87040,50534,20545,2999,95417,28031,49228,26335,46411,281398,070 ALLEGHENYELECTRICCOOPERATIVE,INC.,3'1DECEMBER1978AND1977AssetsTotalUtilityPlantinService.CommunicationEquipmentTransmissionStationEquipment.LaboratoryEquipmentConstructionWorkinProgressTotalUtilityPlantAccumulatedProvisionforDepreciation.NetUtilityPlant.InvestmentsinAssociatedOrganizations.Cash-GeneralFunds.Cash-ConstructionFundsTemporaryCashInvestments.SpeciaIDepositsReceivables.TotalCurrentandAccruedAssets.DeferredDebits.TOTALASSETSLiabilitiesMembershipsPatronageCapitalDonatedCapital-Members.DonatedCapital-Non-Members.TotalMarginsandEquitiesLong-TermDebt-REALong-TermDebt-NRUCFCNRUCFC-Subscriptions.AccountsPayable..DeferredCreditsTOTALLIABILITIES......Member-RevenuesAdamsElectricCooperative,Inc...............BedfordRuralElectricCooperative,Inc.CentralElectricCooperative,Inc...............ClaverackRuralElectricCooperative,Inc......NewEnterpriseRuralElectricCo-op,Inc..NorthwesternRuralElectricCo-op,Assn.,Inc..SomersetRuralElectricCooperative,Inc..SouthwestCentralRuralElectricCo-op,Corp...SullivanCountyRuralElectricCo-op,Inc.SussexRuralElectricCooperative.Tri-CountyRuralElectricCo-op,Inc.UnitedElectricCooperative,Inc.ValleyRuralElectricCooperative,Inc..WarrenElectricCooperative,IncTOTAL1978S138,79357,06926,989551128,442,220S128,665,62223.376S128,642,246.....S4.745,509275,3722,400,2891,141,0001,115,0003,445,466S8,377,1271,025.557S142,790,43919782,8006,388,73129,3163496,421,196123,916,00052,97110,865,070S1,535,202..~.....S142,790,4391978S4299792541630044243,412.779.132,900,847.73679,850.023,845,061.003,028,280.224,321,954.69820,758.331,608,605.172,412,767.882,494,753.093,145,237.85859,084.22S35.459,816.1119771137,67526,98988,824,311S88,988,97511.289S88,977,686S3,273.73513,7421,845,3805,099,47246,958,594454,351S99.664,3661977S28003,220,11929,316349S3,252,58486,013,6688,933,313S1,464.801S99,664,3661977S3,611,651.761,500,129.623,130,459.002,686,046.00623,565.963,283,533.002,693,288.953,859,708.00750,480.441,456,118.172,147,021.002,138,026.002,895.057.00797,585.07S31,572,669.98 tt'il978-OPetretringENPerIseAlleghenyElectricCooperative,Inc.WholesalePowerCostPowerAuthorityStateofNewYork(PASNY)WestPennJCP&LMet.EdisonPenelecCOSTINDOLLARS3,680,527.353,417,733.442,019,974.952,780,143.9617,031,265.17COSTINMILLS/KWH5.03M/KWH25.24M/KWH27.51M/KWH30.46M/KWH29.20M/KWHPERCENTAGEOFTOTALCOS111.12%10.33%6.10%8.40%6146%Sub-Total$28,929,644.8717.91M/KWH.87.41%TransmissionCosts(WheelingforPASNYPower)NewYorkCompaniesG.P.U.Companies.Sub-Total.TotalPowerSupplyExpenseOtherExpensesCustomerAccts.Admin.&GeneralDepreciation&Amortization624,000.002,943,859.94.S3,567,859.94.$32,497,504.81$601,640.190.39M/KWH1.82M/KWH2.21M/KWH20.12M/KWH0.37M/KWH1.89%8.89%10.78%98.19%1.81%TotalOperatingExpense.$33,099,145.0020.49IVI/KWH100.00%PURCHASEDPOWERSOURCESBYPERCENTAGE-31DECEMBER1978TOTALKWH-1,615,219,722-1978-COSTOFOPERATIONSDOLLARDISTRIBUTIONMET-ED5.7%WESTJCP&LPENN4.5%84%PASNY12CJCP&L6CADMINISTRATION&GENERAL2CWESTPENN10CPASNYWHEELING2CPASNY45.3%MET-EDISON8CGPUWHEELING9CPENELEC36.1%PENELEC51C 35AVERAGEMONTHLYWHOLESALEPOWERCOST30'00hC25201977-0/HOLESALEPOWERCOSTAVERAGEANNUAL'1976)510JANMAR:~MAYJULSEPTNOVJANMARMAYJULSEPT.NOVFEB-APRŽJUNAUG.OCTDECFEBAPRJUNAUG.OCTDEC1700YearlyKilowattHoursPercentageofIncrease400MonthlyMegawattDemand16004.39%3501500lh1400Zc0.'130012006.88%677%8.75%300250~~~i4oi04OP11001439%200a~~e410009001971"197219731974197519761977~1978150197819771976JAN.FEBMARAPRMAYJUN'JUI.AUGSEPTOCTtl6VOEC ALYERNAYEENERGYSOURCES-Everyday,millionsofcubicfeetofmethanegasareexhaustedintotheairtoridcoalminesofdangerousmethanegas.program.AlleghenyElectrichasheldmeetingsonthiswithWestinghouseElectricandcoalcompaniestodevelopthissourceofenergy.Inmostothernationsottheworld,thismethanegasiscapturedandusedtogeneratepower.UnderthedirectionofREAAdministratorFeragen'srequesttopursuethedevelopmentoftheuseof"alternate"sourcesofenergy,AlleghenyElectriciscooperatingwithWestinghouseinstudyingpilotprojectsinwesternPennsylvania.WestinghouseElectricreceivedafederalgranttoobtainsomefirst-handoperatingexperienceanddata.TherearecoalcompaniesinterestedincooperatingwiththisThesepilotprojectswillbesmall.Whenthetechnologyisfullydeveloped,thebenefitsfromthisgenerationshouldimprove.Withthecrisisthisnationfacesinsolvingitsenergyproblems,AlleghenyElectricisdevotedtodoitsshareinsupportingtheeffortsoftheDepartmentofEnergy.WealsowillcooperateasanREAborrowerinits"alternateenergy"programs,whichinturncanbeabenefittothemember-ownersofAlleghenyElectricCooperative.ANYIHIRACQT.E~COAIL-IFIIREDGENERAYIIONPennsylvaniaStateUnivegsiyyundeg.Fgr~tAyote~tiagly'ignificanttublingblockfromtheUnitedState~sDepartme~t++E~erg,wffichpa~stheGo/ernogs~EnegyC,neilandstudiedlarge~yateeinthracitemipnilg.~dringaQer+syrtte(ested'-iqthisproject-NbeverperiodŽfrom1976throughparty~1978.Thiscoyceg4ed~s<thepp~etjaporunreasonablstudyidentifiedsjtesviipe~r~athracitevjlhygyI'ng,chaigesijjlp~ol~'d,ing)ttjttgthepowerproduction,suffigidntt6fFetamoen-yizinyveg~dtoultimad~odcenters.Tj1erol)-generating~sttfopvtrvoutdljreppssjbtea~~reatep~wfgayjibv-benepens'rve~btjjj~tebthestucjyyvesto&evaluate~~oorgjcw+t~tpQrurIelecttjqoperativespqstimujatiprtinareagYr~og'pe~~e5svagina+y-rtow'~~jaus]pro~[[)ps)o~"~'"~','deelo~pentj"open-pit"typefrtinjngwpfch~otge~rcostimersandthosd<intert}ate+iouldJff~oirfgbenefits~to~ffJMdepressedev'Pigecmmbnites'nthe8jtpacientracitecoalmininateoionofPennsyfvania.n>garea.Untiltheconsumerhasm~learighttoexpecteneratiagefectrfcisg~vta&~tgegece~deliveryofenergyfromone~ratognother,announcem~6tWbp~te~<Fnviontn~fathiscountrycannotsolveitseergy.crisis.ThePrtacton>Agencytopgerrlp~ft$e~+se~ofnationalgridistheprimaryampleof-along-pfjtr-.'(ifs'vngidion'trfitrPfscoatfsverploujdnsutp1\urndtjta~tegfslationthatnbtysreceiveearlyscfCscruftjrarshweeeo~tjus1ffi~d~T~~eonsfderadonbythoe'interestedinthefutureeaaterj'prfcgafngthracfteduato1gg+etcstoogrna'on.miningmadeit%~useaqafidel.~osadreanissescSbgberscouldbeetfgrinated~tniaohas~i'oneness.ofyoday'senergyWstteghenyEibctrichasvcvorkekewiththehotagesatndthbfactthatotherfuelsforGorfernor'sEnergyGouncilon~heEsesneratron-ate~reetoudprobtems,itcouldbeanthraciteateveryopportunityaplwetht~-perhapsthedayofanthracitecontinue1ostudytheprospects~tusingsneraltohastndee.arived.fSnthracite. Duetothedeepeningenergycrisis,Alleghenyandit'distributioncooperativeshavestrengthenedtheirconservationprograminanefforttoavoidunnecessarywasteofenergyandfindnewalternativesthatwouldbebeneficialforboththecooperativeandtheconsumer.Inthisspiritofcooperation,Alleghenyhasadoptedapolicyforwindenergyconversionsystems.Thepolicyisonethatwillallowamember-consumertousetheenergyfromthewindtothefullestextentincludingthesaleofexcessenergythatcanbeproducedandsuppliedintothe.powersystem.ThereisanIncreasinginterestintheuseofwindenergytogenerateelectricityanditisnecessarythatit'sbenefitsbeexplored..Allegheny-isresearchingthepossibilityofhavingconservationtaughtinallPennsylvaniaschools.Itwould~bebeneficialforallifstudentsweretaughtthebenefitsfor-AllAmericanstobeenergyefficient.AweekinOctoberhadpreviouslybeensetasideanddesignated'sEnvironmentalWeek.Alleghenyfeels,becauseoftheenergycrisisthatconservationshouldalsobe'aught.Newalternativesinwaystoconserveenergyarecontinuouslybeing'revealed,ToenableAlleghenyandthedistributioncooperativestoevaluatetheeffectivenessofthesenewalternatives,testingprogramsareconstantlyproceeding.Asolarwaterheater,which'hasbeenunderteststhispastyear,seemsveryeffective,althoughitstillrequiresaheatingelementas,aback-'up."Sinceheatpumpsarepopularinthemilderclimates,aheatpumpwaterheaterhasbeendeveloped.Inmostcases,theycanbeinstalledalmostanyplace,althoughthebasementseemstobethemosteffective,asitdoesofferacertainamountofdehumidificationwhenitruns.Italsorequiresaheatingelementasaback-up.AlleghenyhasfiledwiththeDepartmentofEnergy,anapplicationforagranttohelpdevelopawaste-typewaterheater.Theexperimentwouldusewasteheatfromtwodifferentareas,thechimneyandtheattic,toassistintheconditioningofwater.Thisisstillpending.Itwasreportedinthe1977AnnualReportthatanenergyvanwaspurchased.It'spurposewastoassistthedistributioncooperativesintheirendeavorstoencourageconservation.Itwillbeused'atco-opmeetings,fairs,.schoolsandotherevents.Itcontainsdifferenttechniques,.whichcanbefollowed,thatmakesthehomemorecomfortableandenergyefficient.Toensuretheenergyvan'seffectiveness,Allegheny,it'distributioncooperativesandREAareproducingvideotapestoillustratethesetechniques.The'setapeswillbemadeavailablethroughREAtoanycooperativeinthenation.Theywillalsobereproducedasslidepresentations.Oneofthevideotapeprogramsbeingproducedistoillustratetheretrofittingofafuel,oilfurnace.Thisproceduremaysaveas'muchas13%onfueloilconsumption.Thistapealsocanbeviewedontheenergyvan. llll0ttennsyvaniaectricooperativesUraProvidingLowCostDependableElectricity150Directors-700Employees1.6BillionKilowatt-HoursPurchasedAnnually$166MillionInvestedinPlantServingin47Counties23,085MilesofLine150,737Member-OwnersGIRARDSUSQUEHANNACLAVERACKRURALELECTRICCOOPERATIVEWARRENWARRENELECTRICCOOPERATIVETIOGATRI-COUIIITYRURALNORTHWESTERNRURALlELECTRICCOOPERATIVECRAWFORDIMcKEANELECTRICCOOPERATIVEBRADFORDWAYNEPOTTERSULLIVAN+XSULLIVANCOUNTYLYCOMINGRURALELECTRICCOOPERATIVE~WYOMING/BIAKELYELKICAMERONVENANGOPIKEMERCERSUSSEXSUSSEXRURALMQFIRQE~ELECTRICCOOPERATIVEJEFFERSONCLARIONCLINTONLUZERNECENTRALELECTRICUNITFDFLFCTRICCOLUMBIACOOPERATIVEBUTLERLAWRENCECOOPERATIVEMONTOURCLEARFIELD7CENTRECARBONNORTHAMPTONNORTHUMBERLANDSNYDERSCHUYLKILLMIFFLINJUNIATABLAIRVALLEYRURALELECTRICCOOPERATIVEDAUPHINARMSTRONGINDIANASOUTHWESTCENTRALBEAVERLEHIGHRURALELECTRICCOOPERATIVEwCAMBRIAWESTMORELANDNEWJERSEYALLEGHENYBERKSBUCKSPERRYLEBANONHUNTINGTONNEWENTERPRISERURALELECTRICMONTGOMERYWASHINGTONCUMBERLANDSOMERSETLANCASTERBEDFORDCOOPERATIVE~>/.FUITOMREOPORORORALELECTRICCOOPERATIVEPHILADELPHIAFAYETTESOMERSETRURALELECTRICCOOPERATIVECHESTERAOAMSELECTRICCOOPERATIVEDELAWAREGREENEADAMSWE%IVIRIINIAMARYLNI PEMMSYLVAMIARURALELECTRICCOOPERATIVE'SENERGYVAMSIIjILIIWv~=-ME~fIt-NOTICE-DEADLINERETURNDATE~~7Conti;)g~~FdP~IWVr.vouSA~libCA~I'~7LAPPDQPMVDSyPgI'ECORDSFACILITYBRANCHSTHEATTACHEDFILESAREOFFICIALRECORDSOFTHEDIVISIONOFDOCUMENT.CONTROL.THEYHAVEBEENCHARGEDTOYOUFORALIMITEDTIMEPERIODANDMUSTBERETURNEDTOTHERECORDSFACILITYSEARCH0'IS.PLEASEOONOTSENDDOCUMENTSCHARGEDOUTTHROUGHTHEMAIL.REMOVALOFANYPAGE(S)FROMDOCUMENTFORREPRODUCTIONMUSTBEREFERREDTOFILEPERSONNEL.ALLEGHENYELECTRICCOOPERATIVE,INC.212LOCUSTST.P.O.1266~HARRISBURG.PENNSYLVANIA17108~PHONE717233-5704 PENNSYLVANIAPOWER8LIGHTCOMPANYReyi~latorgTHEATTACHEDFILESAREOFFICIALRECORDSOFTHEDIVISIONOFDOCUMENTCONTROL.THEYHAVEBEENCHARGEDTOYOUFORALIMITEDTIMEPERIODANDMUSTBERETURNEDTOTHERECORDSFACILITYBRANCH016.PLEASEDONOTSENDDOCUMENTSCHARGEDOUTTHROUGHTHEMAIL.REMOVALOFANYPAGE(S)FROMDOCUMENTFORREPRODUCTIONMUSTBEREFERREDTOFILEPERSONNEL.DEADLINERETURNDATEa-sE0-.9g~j'RECORDSFACILITYBRANCH HighlightsCustomers,atEndofPeriod............~..Kilowatt-hoursofElectricityGeneratedOperatingRevenues.CapitalProvidedbyInvestors,atEndofPeriodReturnonAverageCapitalProvidedbyInvestors.FixedCostRateofLong-TermDebtandPreferredandPreferenceStock,atEndofPeriod.CommonStockData:ReturnonAverageCommonEquity......EarningsPerShareDividendsDeclaredPerShare...........TimesInterestEarnedBeforeIncomeTaxes1976936Thousand28.5Billion$644Million$2.4Billion8.83%7.91%11.61%$2.68$1.802.621975918Thousand27.5Billion$544Million$2.1Billion876%7.76%12.52%$2.87$1.802.80PennsylvaniaPower&LightCompanyisanelectricutilityprovidingserviceto936,000,homesandbusinessesovera10,000-square-mileareain29countiesofcentraleasternPennsylvania.PrincipalcitiesinthePPBLserviceareaareAllentown,Bethlehem,Harrisburg,Hazleton,Lancaster,Scranton,WilliamsportandWilkes-Barre.So'cRet+,"Coiitrol4'l'ateofDociment'EGULATORYDOCKETFllEContentsChairman'sComments1TheYearinReview3AnalysisofStatementofIncome13Flnancials17NotestoFinancialStatements22StatisticalSummary30DividendsandStockPrices31OfficersandDirectors32PP8L'sNewPresident-Insidebackcover Chairman'sCommentsAfteryearsofunheededwarnings,severeshortagesofnaturalgasfinallyoccurred,gpgyig.~i.precipitatedbytheprolongedwintercold.Onemoresignalthatwer.haveaseriouslong-termenergysupplyprobleminthiscountry.Itisnowbeyonddebatethatwhenenergyshortageshit,oursocietyiscrippled.TheharshevidenceoflostemploymentI~>andlostproductionisindisputable.Thewinterweatherconditionsalsocreatedalargenumberofoperatingdifficultiesforgeneratingunits.Evenj~so,electricloadsweregenerallymet,thoughcapacitymarginsweretight.Theso-calledexcessgeneratingcapacityofsomeutilities-criticizedhereandthereafewmonthsago-totallydisappearedinthewintercold.Onebrightspotwasthegoodperformanceofnuclearpowerplants,reflectingtheirfreedomfromthelimitationsofconventionalfuelsupplyanddelivery.Ifithadnotbeenforindustrialplantshutdownsbecauseofnaturalgascurtailments,whichreducedelectricalloadsthatwouldotherwisehavebeenonline,therewouldhavebeencriticalshortagesofelectricity.Thisisareminderthatthebasicissueofbuildingaheadtohaveadequategeneratingcapacityandfueltomeettomorrow'selectricalneedsisverymuchwithus.Leadtimesforpowerplantsitingapprovalsandconstructionarelengthening.PP&L'smostrecentlookindicatesthat,asthingsnoware,wehavetoallowabout13yearstobringanewcoal-burningpowerplantonlineatanewsite.Theimplicationsarescary.Thismeansthat,apartfromcapacitynowinservicepluscapacityunderconstruction,thereisnothingthatcanbedonetoaddmorecoal/nuclear-basedpowersupplyfor1984/1985.Indeed,wearepracticallyat1990.Everydayisincreasingthehazardoffutureshortagesofelectricpowersupply.Yet(Ij)//pt!':,~~-'~~~'j.-actionisinhibitedandconstrictedbyacomplexamalgamofuncertaintiesandrisks.Theneedforclarifyingandsupportivegovernmentalenergyajpoliciesisoverwhelming.Theadoptionofeffectivenewenergyfj."policiesdependsonwhetherAmericanshavethewilltodowhatisrequired.Thegeologicandeconomicrealitiesunderscoretheneedformore,ru/investmentforfacilities,fuelandadvancedresearch,aswellasmoreinvestmentforconservation;Itisgoingtobeanexpensiveprocess,withquickpayoffsbeingunlikely.Forthetimebeingatleast,allsignspointtocontinuinghigherpricesforenergy.Thisisnottheanswerpeoplearelookingfor.Itseemstheywouldprefertohearthathigherpricesforenergyarecausedbysomekindofenergyfraudorfix,orbytheheedlessactionsofuncaringmanagements,notionswhichcarrythecomfortingthoughtthatif"thescoundrels"canbeidentifiedandproperlydealtwith,consumerenergyproblemswilldisappear.So,alltoooftenthisiswhatpeoplearetold,frequentlycoupledwithafewrousingdenunciationsof"obsceneprofits."Although,suchtalkhasanunmistakablepopularappeal,itisperniciousnonsense.Itobscuresrealityandpromotescop-outattitudes.Itdiscouragesnewinvestmentandfrustratesthedevelopmentandimplementationofthebasiclong-termenergydecisionsthatarenecessary.Wewantourinvestorsandcustomerstoknowthatwhilewethinkitismisleadingtogivepeoplefalsehopethatsomewaycanbefoundtoprotectthemfromtherealityofhighercostsofenergy,werecognizethatitisourjobinPP&Ltorunatautshipandtoexerteveryefforttoholddowncostsandtoimproveourperformance.Weappreciatethatwearelivinginaneverchangingworldwherenewopportunitiesforbetterperformanceregularlyoccur.r Weunderstandthatitisourresponsibilitytoseekthemoutandputthemtogooduse.Werealizethatwecannotseeourselvesasothersseeus.Therefore,webelieveintheconceptofoutsideauditstomonitormanagementeffectivenessandoperatingefficiency.Whilenooneisperfect,andnoonelikestobecriticized,ouraimistohaveaconstructiveattitudeabouttheoutsideauditprocessinwhichwewelcomesuggestionsandadviceonwhereandhowwecandobetter.Wealsowantourinvestorsandcustomerstoknowthatoutsideforces,overwhichwehavelittleornocontrol,arethemaincausesforthehighercostsandpricesofenergy.Forexample,wedonothavecontroloverthefactthattheexplorationanddevelopmentofenergyresourcesinmoreremoteandmoredifficultlocations,andatgreaterdepths,isboundtobemorecostly.Wedonotconsiderthatweareresponsibleforthenationalpoliciesanddecisionsthathavecausedinflationwithallitsconsequentcostincreases.Nordidweestablishthehostofnewandcostlyenvironmentalstandardsthatnowhavetobemet,withinevitablereflectionsinhigherpricesforelectricservice.Ourabilitytogetthingsdonepromptlyandatlowcosthasnotbeenhelpedbytheendlessstreamofnewgovernmentalrequirementswhichhaveproliferatedreports,hearings,investigationsandallkindsoftechnicalstudies.Thesavinggraceinthisoutside-imposedcostsituationisthatitdoesnotarisefromanyintentiontoincreasecosts.Onthecontrary,thedifficultyratherstemsfromanexcesszealtodogoodthingsforpeoplewithoutsufficientlyconsideringthecostconsequencesbeforehand.Thisisreallyaproblemofinadequatesystemsmanagement.Overtime,energyhasbecomeafflictedbytoomanylaws,regulationsandprogramswhichhavedifferentpurposesandpriorities,andwhicharenonconnectedandunrelatedeventhoughtheyexistsidebyside.Wehavenowcometothepointwhereweareboggeddowninanunacceptablemishmashofcrosscurrentsandconflicts.Somegovernmentmanagementhousecleaningisinorder.ItismostencouragingthatPresidentCarterhasproposedtoestablishacomprehensive,restructuredfederalenergydepartmentheadedbyDr.JamesSchlesinger.WeurgeinvestorsandcustomersofPP8Ltosupportactiontothisend.Wetakethispositionbecauseweareconvincedthatacentralobstacletothenation'sworkingitswayoutoftheenergycrunchisthepresentfragmentationofenergyjurisdictionswithinfederaldepartmentsandagenciesandwithintheCongressionalcommitteestructure.Theproposedfederalenergydepartmentcouldbeamostsignificantfirststeptowardsestablishinganadequatemanagementsystemforenergy.OthercounterparthousecleaningstepsinvolvingtheCongressandfederal-staterelationshipsinenergycouldthenbepursuedwithsomereasonablechanceofsuccess.Withoutfurtherdelaywemustfacethefactthatourpatchworkquiltofpiecemealenergymanagementisnotworking.Certainlyweneednaturalgas,butnaturalgascannotmeetallourenergyneeds.Thesameistrueforourothermajorfuelsources-oilandcoalanduranium.Allformintermeshedpartsofthenation'soverallenergysupply.Theunavailabilityofanyoneisdisruptiveofthewhole.Thatwasn'talwaysso,butitisnow.Themanagementofenergyasatotalsystemistheonlysafeescaperoutethatstillremainsopentous.WeclosethesecommentswiththegoodnewsthatRobertK.Campbell,aformerexecutiveofWesternElectric'sNewYork-basedManufacturingDivision,hasjoinedusaspresident,effectiveFebruary1.Thisdecision,madebytheboardofdirectorsaftermanymonthsofconsideration,isamajorstepintheprocessofprovidingforthecontinuingstrongmanagementoftheCompany.BobCampbellis47.HebringstoPPLLafinecombinationofexperienceand"youngblood."Theinsidebackcoverofthisreportprovidesanin-depthlookatournewpresident.Ihavebecomechairmanoftheboardandwillcontinueaschiefexecutiveofficer.Respectfullysubmitted,JackK.Busby,ChairmanMarch1,1977 TheYearInReview1976EarningsAlthoughearningsavailableforcommonstock~rosenearly8percentto$78.7million,PP&L'spershareearningswere6.6percentlowerfor1976thanayearago-$2.68pershareversus$2.87for1975.Contributingfactorsinthedeclinewerethedelayinapprovalofhigherratestooffsetthehighercostsofdoingbusinessandthedilutingeffectofanincreaseof15.3percentinoutstandingshares.HigherRatesAllowedSomehelpinreversingthedownwardtrendofearningscameinAprilandAugustwhenthePennsylvaniaPublicUtilityCommission(PUC)allowedhigherratestogointoeffect.However,duringthe17monthstheratecasewaspending,additionalsubstantialinvestmentwasmadebytheCompanyinfacilitiestoserveourcustomers.Likewiseouroperatingcostsincreasedsubstantiallyduringthisperiod.Theresultisthatourincome,basedonratesformulatedgenerallyon1975costlevels,islaggingsubstantiallybehindpresentcosts.This"lag"wasasignificantfactorinour1976earningspicture.If,backattheoriginalMarch1976deadline,wehadreceivedtheamountwewerefinallyallowed,ourearningspersharefor1976wouldhaveexceededthe1975level.Itappearsthatduring1977wewillagainhavetopetitionthePUCforhigherratestoadjustforthehighercostsofprovidingserviceandtocompensateinvestorsforthefundstheyhaveprovidedfornewfacilities.TheCompanyhadoriginallyrequestedanoveralltwo-step15percentincreasebackinMarchof1975becausetheratesineffectatthattimewerenotadequatelycoveringthecostofprovidingelectricservice.Thefirststepproposedanincreaseofabout4percentandthesecondsteprequestedanadditional11percent.Afterpublichearingsinthreecitiesbothstepsweresuspendedbecauseofconcernover"lifeline"provisionsintherequest.Wehadfiledthelifelineproposais,whichwouldhaveexemptedfromanyincreasethefirst200kilowatt-hoursofusepermonth,torecognizesomeoftheinflationproblemsfacedbysmailusers,lowincomepeopleandtheelderly.Thesuspensionorderalsoinitiatedtheusualinvestigationoftheraterequest.AfterdenialofinterimreliefbecauseofthelifelineprovisionsPP&Lfiledasubstituterequestwhichdeletedthelifelineportion.Thesubstitute4percentwasallowedtobecomeeffectiveSeptember13,1975,subjecttorefund,andhearingsonbothstepsbegan.OnDecember9,1975,thePUCsuspendedthesecondstageoftheCompany'srequestuntilMarch19,1976,topermitfurtherinvestigation.Morethan20publichearingswereheldbetweenSeptember1975andtheendofJanuary1976.AstheMarch19,1976statutorydeadlinedrewnearitwasapparentthatabacklogofratecaseswouldpreventthePUCfromreachingafinaldecision.InlateFebruarywevoluntarilyextendedtheeffectivedatetoJune1,1976.BythisactiontheCompanywaiveditsrightstorecoupanymoneyitmightlaterbeallowedbylawbecauseofthedelayinthedecision.Becausecollectingmake-upor"back"revenueshadbecomesuchavolatileissue,wewantedtoremoverecoupmentasanissuesotheratecasecouldbedecidedonitsownmerits.AdditionallyweaskedthePUCtoallowustocollectonatemporarybasis,subjecttorefund,about4percentofthe11percentstilltobedecidedon.ThatadditionalamountwasallowedtogointoeffectonApril14.BecauseoftheheavyworkloadatthePUC,nodecisionwasmadebyJune1andPP&LvoluntarilyextendedtheeffectivedateandwaivedrecoupmenttoJuly1,thenagaintoAugust5.ThePUConAugust4announceditstillneededmoretimeandorderedratesthenineffecttobecometemporaryrates.Underlaw,arecoupmentperiodstartedwiththatdate.OnAugust26,1976,thePUCrenderedafinaldecisionallowingtheremaining7percentincreasetotakeeffect.PP&LagainwaivedthecollectionofretroactivechargesasbeinginthebestinterestsofbothcustomersandtheCompany.Thisactionallowedusthefull15percentweoriginallyrequested. PUCLawRevisedDuring1976,lawmakersenactedlegislationwhich,whenfullyimplemented,shouldallowthePUCtobemoreresponsivetobothutilityandconsumerconcerns.Themostimportantchangeinthenewlawcallsforfull-timecommissionerswithhigherandmorerealisticsalaries.Inturn,thefivecommissionersaregivenmoreleewayinsettinghigherstaffsalaries,makingiteasiertoretainandattractanadequate,highlyqualifiedstaffandtosupportabroad-basedexpansionofoperations.Newkeypositionswillbeaddedtothecommissionstaff.TheOfficeofAdministrativeLawJudgewillhavefullauthoritytopresideoverevidentiaryhearings.TheBureauofConservation,EconomicandEnergyPlanningwillmonitorprogressonenergyconservationandlong-rangeenergyplanning.OtherlegislationcreatedanOfficeofConsumerAdvocate,separatefromthePUC.ThisadvocatewillrepresentconsumersinratecasesbeforethePUC.RatecaseprocedureisalsobeingchangedeffectiveOctober1977.Thecurrentpracticeofallow-ingpromptandpartialratereliefpendingcomple-tionoffullratecaseproceedingsiseliminated.Suchreliefisnowmadesubjecttodemonstratinganemergencyneed.Theretroactivesurcharge,nowmandatoryincaseswherethePUCallowsanincreaseafteradelaybeyondninemonths,hasbeenrepealed.However,ifmajorratecasesarenotdecidedwithinninemonthsfromthedatearequestisfiled,theratesthatwereaskedforgointoeffectautomatically,subjecttorefund.Anothermajorreformisthatutilitiesarenowpermittedtobasetheirraterequestsonafuturetestyear,backedupbyappropriate,substantiveestimates.Inthepast,allapplicationsforratereliefhadtobebasedonapriortestyear.PP&Lisconvincedthatstrong,capableandindependentregulation,whichhasthepublic'sconfidence,isessentialtotheinterestsofconsumersandutilities.Wefeelthatthetotalreformpackageenactedlastyearprovidesagoodstepintheright-direction.However,thereshouldbeperiodicreviewtotestwhether,inpractice,thereformproceduresareworkingsatisfactorily.EconomicRecoveryNudgesEnergyUseUpReflectinganimprovingeconomy,ourcustomers'ilowatt-houruseofelectricityincreased6.5percentduring1976.Thisfolloweda1percentgrowthrateinkilowatt-hourusagefor1975andahalfpercentayearearlier.Thisgrowthisattributablemostlytotheimprovingeconomyaftertwodepressedyears.Whileitistruethatcolder-than-normalfall-winterweatherincreasedfourthquartersales,andcustomerbills,significantly,warmer-than-normalweatherduringtheearly1976heatingseasonpracticallyoffsetthelaterincreases.Weconsidersomegrowthtobeinevitablebecauseofincreasingpopulationandupgradedstandardsoflivingbutwearesensitivetothehighcostsofgrowthandarethoroughlycommittedtomoderatinggrowththroughconservationandwiseenergymanagement.Wearebasingourlong-rangeplanningonaforecastofacompoundannualgrowthrateofabout4.5percent.However,wiserandmoreefficientenergyusecouldholdthatratedownevenlower.1977ConstructionBudgetPP&L'sconstructionbudgetfor1977is$390million(including$14millionfornuclearfuel),downabout$18millionfromlastyear'sexpenditures.Slightlyover$248millionofthatisbudgetedforourSusquehannanuclearplant.Thetotalconstructionfigureforthenextfiveyearsisalmost$2.2billion.HersheyElectricPurchasedPP&LacquiredalltheoutstandingcapitalstockofHersheyElectricCo.(HEC)onDecember31,1976fromHerco,Inc.(formerlyHersheyEstates).TermsofthepurchasehadbeenapprovedearlierintheyearbythePUCandtheSecuritiesandExchangeCommission.HECisapowerdistributioncompanyonlyandhasnogeneratingplants.HECpurchasespowerfromanotherelectricutilitytoservethe5,500homesandbusinessesinits28-square-mileservice area,andwillcontinuetodosoforthetwoyearsormoreittakestointegrateHEC'soperationsintothePPBLsystem.SusquehannaNuclearProjectConstructionofthetwin1,050,000-kilowattboilingwaterreactorgeneratingunitsnearBerwickcontinuedtoprogresstowardstartupin1980and1982.Unit1was37percentcompleteattheendof1976andUnit2progressstoodat25percent.Constructionmilestonesfor1976includedthestartofthemassivecoolingtowersforbothunits,enclosingtheturbinegeneratorbuilding,completionoftheconcretepedestalforUnit1turbine-generatorandputtinginplacethereactorpressurevesselforUnit1.Significanteventsinplanningforplantoperationincludedunionagreementonstaffingproceduresandthebeginningofselectionandtrainingofpersonnel.Acomputerized$8-milliontrainingsimulatorwillprovideafull-sizedworkingreplicaoftheactualplantcontrolroom.Thesimulatorwillbeusedforbothinitialtrainingofplantoperatorsandforrequiredongoingrefreshertraining.TheCompanyexpectstocompletenegotiationsandsigncontractsduringthefirstquarterof1977forAlleghenyElectricCooperativeInc.,toacquirea10percentownershipintheSusquehannaplant.MartinsCreekOilUnitsPP8L'slarge820,000-kilowattMartinsCreekUnit3completeditsfirstfullyearofserviceinOctober.Itworkedexceptionallywellasa"cycling"unittomeetpeakelectricdemandonoursystemandonthePennsylvania-NewJersey-MarylandInterconnection.Theunitburnsresidual,orheavy,oilandwasdesignedwithoperatingcharacteristicsthatallowittomoveitsoutputquicklyupordowntomeet*fluctuatingusepatternsthroughouttheday.Thisisoneoftheoilunit'smainoperatingdifferencesfromourcoalunitswhichhaveamuchslowerup/downcycle.~*'EgPMrConstructionmovesaheadatg~plant.Illustratedinthe'+-'kL~.<<<>>~foregroundaretheboilingwaterreactorpressurevessels.~~ UsingUnit3inthiswaygreatlylessenstheneedtousetheexpensive-to-operate,smaller,stand-bycombustionturbineswhichburnnumbertwooil,whichisthesameasthatburnedinhomeheatingsystems.Unit4atMartinsCreek,atwinoftheonealreadyinservice,wassynchronizedwiththePP&LsysteminDecember1976and,afterashakedownperiod,willbeputintocommercialoperation.PipelinetoMartinsCreekThemuch-delayed84-milepipelinefromMarcusHook,belowPhiladelphia,toourMartinsCreekplant,ontheDelawareRiveraboveEaston,isfinallyinservice.Theprojectrequiredmorethanthreeyearsforgovernmentalclearancesandlessthansixmonthsforconstruction.Althoughtheoriginalscheduleallowedtwoyearsforapprovalandconstructionoftheline,whichthenappearedtobemorethanadequate,Unit3wascompletedandreadyforoperationbeforeconstructionofthepipelinewasevenbegun.Thedelaymadeitnecessarytoconstructa$2.3millionalternaterail-unloadingfacilitytoassurefuelforinitialoperationofUnit3.ArrangementsfortankerunloadingandstorageterminalfacilitiesatMarcusHookwerecompletedinearly1976andoilhasbeenflowingthroughthepipelinesinceAugust1976.DuringthecoldweatherofJanuary1977,bothoftheMartinsCreekoilunitswereusedextensivelytohelpproducethehugeamountsofelectricityneededbothforourcustomersandforregionalelectricsupply.Duringthatperiod,unaffectedbyextremeweatherconditions,thepipelinemorethanproveditsvalue.Wellover56.6milliongallonsofoilweredeliveredthroughthepipelinetoMartinsCreekduringJanuary.Ifwehadstillbeenusingtherailfacilitieswereliedonearlier,itwouldhavetakennearlythreemonthstodeliverthesameamountofoilunderoptimumconditions.Wejustcouldnothavegottenthatamountofoiltothoseunitsandatightelectricsupplysituationwouldhavebeenworsened.FuelsPP&Lgeneratingfacilitiesareattheheartofourelectricsupplysystem.Withoutfuels,though,ourgeneratingplantswouldbejustsomuchidlemachinery.Thepastyearwasmarkedbyparticularlysignificantdevelopmentsintheareaoffuelsupply.AnthraciteSomepreliminaryresultswereannouncedinOctober1976,ofayear-longstudyintothefeasibilityofbuildingananthracite-burninggeneratingstationnearanthracitefieldslocatedintheCompany'sservicearea.Thestudyshowedthatenoughcoalisavailabletofuelatleastfour400,000-kilowattgeneratingunitsfor30to40years.Thestudyalsooutlinedthefollowingfactors:~Anthraciteisalowsulfurfuelascomparedwithmosteasternbituminouscoal,thusananthraciteplanthasthepotentialformeetingemissionstandardswithoutthecumbersomeandexpensivesulfurdioxidecontrolequipmentneededbytoday'sbituminous-coal-burningplants.However,thefinalanswerwilldependontheapplicationoftheCleanAirActandrelatedregulations.~Surface,oropen-pit,miningistheonlypracticalwaytoobtainthecoalatthistime.~Theopen-pitminingwouldbelargerthananyseeninthehardcoalregionstodate.Itwouldbesubjecttoapprovalunderstrip-mininglawsandregulations.Weexpectapprovalswouldrequireareclamationeffortwhichmustbeplannedbeforethefirstshovelofearthisdug,andwhichwouldleavethelandinbetterconditionthanbeforetheminingtookplace.~Themagnitudeoftheconceptsunderconsiderationinvolvesapitofaboutone-quarterofasquaremileinareaand400to800feetdeep.Thepitwould"move"overatotalsiteofabouttwotothreesquaremileswithconstantbackfillingandreclamationcontinuinginthemined-outsectionsasthepitadvances.During1977theCompanywillbeconfirmingownershipofmineralrightsonthemostfavorable sitesindicatedbythestudyanddoingadditionalcoredrillingtofurtherrefinetheinformationonhowmuchcoalisavailableandwhereitis.Thisadditionalinformationisrequiredbeforeafinaldecisionismadeonwhetheranthracitewouldindeedbeaneconomicalfuel.Thisfueldecisionwouldbeonlyapartofanoveralldecisionontheeconomicsandfeasibilityofananthracitepowerplantproject.BituminousCoalSincetheearly1960sPP&Lhasbeenacquiringcoallandanddevelopingminingoperationstothepointwhereabout40percentoftheninemilliontonsofbituminouscoalweneedeachyearisminedatouraffiliatedsources.Ourminesareoperatedonazero;profitbasis.Coalproducedbytheseminesissupplementedbyoutsidelocalpurchaseswhichenableustobroadentheuseofourcoal-cleaningplantsandourunittrains.Theresulthasbeenareasonablysureandstablesystemoflong-termsupplyanddeliveryofaboutthreetofourmilliontonsofbituminouscoalayear.Overtheyearsthishasmeantsubstantialsavingsforourcustomers.Inthepasttwoyears,however,therehavebeenseriousproductionproblemsatourGreenwichandOneidamines.Theseproductionproblemshavebeengreatlyescalatingourcostsatthesametimetheopencoalmarket,wherewepurchasethebalanceofourrequirements,hasbeen"soft."Asaresulttherehasbeenawideningcostgapbetweenouraffiliatedminecoalcostsandmarketcoalcosts.Weareawarethatthepriceadvantagesofmarketcoalarerealtodaybutmaybegonetomorrowsincemostofitisstrip-mine,nonunioncoalproducedfromlimitedlifereserves.Wehaveundertakenanintensivereviewoftheentiresituation.Whilethefinalevaluationwillnotbe'&Anopen-pitmineusingshovelandtruckexcavationandhaulageisoneofthemethodssuggestedforuseInmininganthraciteinayear-longfeasibilitystudy. inhandforseveralmonths,ourpreliminaryjudgment,subjecttochange,isthatthepossibleshort-termadvantagesofaswingtoallmarketcoalpurchasingwouldbemorethanoffsetbythelong-termcost/supplydisadvantages.GreeneCountyReservesIn1974and1975weacquiredcoalrightsinGreeneCountyinsouthwestPennsylvaniawhichaddedabout325milliontonstoPP&L'sestimatedrecoverablecoalreserves.IntheratecasedecisionbythePUClastyear,theinvestmentinthesereserves($51million)wasexcludedfromthepropertybaseonwhichallowableearningswerecalculated.Becauseofthisandtheuncertaintiesnowaffectingbothelectricloadgrowthandfinancingofnewminingfacilities,wearereexaminingourpriorplansfordevelopmentoftheGreeneCountyReserves.NinthUnitTrainTheCompany'sninthunitcoaltrainwasputintoserviceduringthesummerof1976.The105-cartrain,alongwiththeeightothercoaltrainsalreadyinservice,yieldedtotalsavingsin1976ofabout$17millionovercostsoftransportingthesameamountofcoalinrailroad-ownedcars.TheCompanyhasusedunitcoaltrainssince1964whenwerecognizedthatsavingsintransportingcoalcouldreduceoverallcostsofelectricity.TheCompanyfleetnowconsistsofnearly1,000cars.OilPP&LhascontractswithtwomajorsuppliersforalloftheprojectedoilneedsofourMartinsCreekunits.Eachofthesuppliersgetsitsoilfromdifferentpartsoftheworld.Thisgivesusamorediversesupplyandlessensourdependenceononlyonesupplierorcountryforouroilneeds.UraniumWithdeliveryarrangementsforthefirstfuelloadsin1980atourSusquehannanuclearplantalreadytakencareof,wetookanumberofadditionalstepsin1976toassureadequateshort-andlong-termuraniumsuppliesfortheplant.Short-termstepsincludedlocatingandbuyinganadditional650,000poundsofuraniumfordeliveryintheearly1980s.Fortheintermediateandlongerterm,weareinvestigatingtheeconomicfeasibilityofgettingintotheuraniumminingbusiness.Wehavesecuredoptionsonupto22,000acresofUtahpropertiesandwillcontinueexplorationanddrillingonthelandduring1977.Wehavetheoptiontobuythemineralrightsifgoodsuppliesofqualityorearefound.Wearealsoinvestigatingthepossibilityofjoiningwithseveralneighboringutilities,whichalsohavenuclearplantsbuiltorplanned,injoint-ventureuraniumminingactivities.Thesemovesarebeingconsideredbecauseoftheuncertainlong-termmarketinprocesseduranium.ResearchTheCompanycontinuestobefirmlycommittedtoparticipatinginawidevarietyofresearchprojectstoinvestigatenewwaystoprovideourcustomerswithqualityelectricserviceatthelowestpracticableprice.During1976,nearly$1.7millionofour$2.7millionresearchbudgetwenttowardfundingvariousindustry-wideelectricresearchprojectsthroughEPRI(ElectricPowerResearchInstitute).SeveralEPRIprojectsareofparticularinteresttoPP&L.Oneofthemostimportantisresearchintofluidized-bedcoalcombustionthatcouldbeanalternativetocostlysulfurdioxidefluegasscrubbers.Thismethodburnscoalinthepresenceoflimestonewhichtrapsthesulfurbeforeitcanescapewithotherboilergases.OtherEPRIprojectsincludethestudyofcoalgasificationandliquefactionandtheimprovementofpowerplantreliability.About$360,000ofourresearchbudgetwenttowardthefundingoftheliquidmetalfastbreederreactorprojectatOakRidge,Tennessee.Theremainderwasdividedamongotherprojectsincludingthestudyofalternativeenergysources-thesun,wind,fusionandsolidwaste-andmethodstoimprovetheperformanceofvariouspowerplantequipment.Ourtotalresearchbudgetfor1977isalmost$3.5million. ServiceAreaEconomyEventhough,onanationalbasis,1976wasayearofgearingupfromthebottomofthe1975recession,theunemploymentrateinourservicearearoseto8.6perceritfrom1975's7.4percent.Thisrisewasattributedprimarilytolayoffsduetosluggishlocaleconomies.Anothereconomicindicatordidshowpositivesigns.Withinour10,000-squaremilearea,wehadanetgainof1,921industryjobsduring1976comparedtoanetlossof1,885in1975.However,therewasstillasubstantialamountofunoccupiedindustrialspaceavailableatyear-end.Morethan100marketablebuildingswithatotalofalmost5.5millionsquarefeetareavailablebutunoccupied.Becauseofthesecircumstances,weseenocontradictioninurgingconservationandeffectiveenergyuseontheonehand,andactivelysupportingareadevelopmentprogramswhichwillhelpbringinneededjobsontheotherhand-eventhoughsomeincreaseduseofenergywillresult.Conservationshouldbeanintegralpartofalluseofenergy.Butminimizingtheuseofenergyatthepriceofundercuttingtheemploymentuponwhichthesocio/economicviabilityofoursocietydependswouldbesolvingaproblembycreatingaworseone.AuditResultsFinalresultsofayear-long,in-depthstudyoftheCompany'soperationaleffectiveness,conductedbythemanagementconsultingfirmMcKinsey&Co.,werecompletedandmadepublicinMarch1976.ThevoluntarystudywasundertakentoidentifyopportunitiestoreducecostswithoutdecreasingthequalityofelectricserviceandtorecommendaspectsofCompanyoperationsthatneedimprovement.Thestudyproduced14keyrecommendationsthatcanbegroupedintofourmajorcategories:strengtheningPP&L'sfinancialposition;intensifyingplanningincriticalresourceareas;tighteningmanagementcontrol;andimprovingproductivity.ByFebruary1977,detailedresponsesandactionplansfor13ofthe14keyrecommendationshavebeenapprovedbymanagement.ActionplanshavealsobeendevelopedformanyoftheotherMcKinseyrecommendations.CorporateEnergyPlanningCouncilAsoneresultoftheoperationalaudit,theCompanyformedaCorporateEnergyPlanningCounciltorespondmoreeffectivelytotheplanninganddecision-makingchallengesfacingPP&Ltoday.Thequestionswhichmustbeansweredaspartoftheplanningprocessarebecomingmorecomplexanddifficulttodealwith:Whatwillbethedemandforfutureelectricservice?Whatkindsandsizesofgeneratingunitsshouldbebuilt'?Wherecannecessaryfacilitiesbesited'?Whatratelevelswillbeneededtoraisethecapitalneededtobuildthefacilities?Howmuchcanloadmanagementandenergyconservationprogramsoffsettheneedfornewfacilitiesandcapital?WehavebeenabletodealeffectivelywiththesequestionsthroughplanninggroupswhichareapartofthevariousindividualCompanydepartments.However,asthepaceofchangehasquickenedandthecomplexityofplanninganddecision-makinghasgrown,theneedforcoordinationamongplanninggroupshasincreased.Suchcoordination,whichhasbeenlargelyinformal,willnowbeexpandedandformalizedbythecounciltoprovideasounderbasisfordecision-making.EnergyConservationLastyear,werealizedanestimated88,000-kilowattreductionindemandgrowthasaresultofcustomerenergyconservationeffortsaidedbyPP&L-sponsoredprograms.Forourresidentialcustomers,conservationprogramscenteredaroundtechniquesdevelopedatourexperimental,solar-supplementedenergyconservationhomethatwasbuiltin1973northwestofAllentown.Forexistinghomes,weareadvisingthattheinstallationofadditionalatticinsulation,stormwindowsanddoorsandweather-strippingoffersthebestopportunityforsavings.Forarelatively smallinitialinvestment,customerscanmaketheirhomeenvironmentmorecomfortablewhileloweringheatingandcoolingcostsoverthelifeofthedwelling.TheCompanyisalsoinvolvedinenergy-conservationprogramsfornewhomeconstruction.WecooperatedwithbuildersineachofourfivedivisionsinaBicentennialHomesProject.Thefivehomes,whichincludedthelatestenergy-savingconstructionmethods,heatingandcoolingsystemsandbuildingmaterials,wereopenforpublicinspectionlastsummerandwerevisitedbymorethan30,000people.Realizingthecostsavingstothecustomerandtherelatedenergysavings,PP&Lhasadoptedhigherthermalstandardsforresidentialconstruction.Thesenewstandards,includingtheuseoftongue-and-groovestyrofoamsheathing,plusenergy-savingrequirementsforventilation,waterheatingandspaceheatingandcoolingsystems,becamethefoundationforourEnergy-EfficientHomeAwardProgram.Thisprogramisdesignedtoencouragehomebuildersandtheirsubcontractorstouseenergy-efficientequipmentandconstructiontechniques.Sofar,52newhomeshavebeenbuiltundertheguidelinesofthisprogram.Efficientuseofenergybyourcommercialandindustrialcustomerswasencouragedthroughourenergymanagementprogram.Sincetheprogrambeganin1975,PP8Lhasencouragedandhelpedmorethan900industrialandcommercialcustomersorganizeenergymanagementteamstoimprovetheirenergyefficiency.Ofthese,33businesseshavereceivedCompanyenergymanagementawardswhichrecognizethatsignificantchangesandinvestmentshavebeenmadetoreduceelectricaldemandandenergyuse.Someoftheenergy-savingmeasuresincorpor-atedbyareabusinessesincludetheinstallationofadditionalinsulation,theuseofmoreefficientcontrolsforheating,ventilatingandaircondi-tioningsystems,theadditionofheatrecoveryequipmentandswitchingtohigherefficiencylightingsystems.ConsumerAffairsPrograms1976wasayearwhenPP8Ltooksomefurtherbridge-buildingstepstoclosetheadversarygapbetweenutilitiesandconsumeradvocates.Ourfirsttentativestepstowardanevolvingconsumer-interestprogramweretakenin1972whenwediscontinuedourmarketingprogramandestablishedourConsumer8CommunityAffairsDepartment.Energyconservationandenergymanagement,alongwithanincreasedemphasisonconsumeraffairs,becameprimaryobjectives.ButPP8Ldidnotjumpdirectlyfrommarketingintoaneatlypackagedconsumeraffairsprogram.Abouttwoyearswerespentmainlylisteningtoconsumers,tryingtofindoutwhattheirfrustrationsandtheirneedswere.Ourconsumeraffairsrepresentativesattendedmeetingsoforganizedconsumergroupsandweexperimentedwithlocalizedprogramstryingtofindwherewecouldbemosthelpful.10 ThedoortobettercommunicationopenedabitmoreinJanuary1976whensixrepresentativesofCOCO(thenationalConferenceofConsumerOrganizations)andtwofromthelocalPOWER(PeopleOutragedWithElectricRates)groupacceptedPP&L'sinvitationtositdownwithourconsumeraffairspeopleandwithJackBusbytodiscussareasofmutualinterest.Sometoughquestionswereaskedanddiscussionwasfrankandstraightforward.ItwasagoodexperiencefortheCompanyandbothsidesgottoknoweachotherbetter.FromthosemeetingsgrewthefirstPennsylvaniaUtility-ConsumerEnergyConferenceheldinHershey,Pa.,inSeptember.Thethree-dayconferencewasco-sponsoredbyCOCOandPP&Landwassignificantbecause,possiblyforthefirsttimeinthenation,aconsumergroupandanelectricutilitywereorganizingalarge,formal,jointcommunicationeffort.Morethan275personsattendedfrom12states,theDistrictofColumbiaandCanada.Therewereconsumergrouprepresentatives,governmentandregulatoryrepresentativesandpeoplefrom30othergas,telephoneandelectricutilities.Throughdebate,discussionandforumsbothsideswereabletopresenttheirviewsonsuchdiversetopicsasratemaking,profits,pollution,energysources,regulationandtaxes.Mostimportantly,though,bothutilitiesandtheconsumeristsinvolvedintheconferenceexpressedconfidencethattheirinvolvementwasasignificantstepininitiatingandencouragingcloserdiscussionandunderstandingoftheissueswhichhavesogreatlypolarizeddifferencesbetweenelectricutilitiesandtheircustomerscountrywide.ProvidingourcustomerswithsatisfactoryserviceisourmainbusinessatPP&L.Thismontageillustrates(atleft)thefirstPennsylvaniaUtility-ConsumerEnergyConference,co-sponsoredbyPPBLandtheConferenceofConsumerOrganizations.1Thestate-of-the-artCustomerInterruptionAnalysissystemillustratedonthefarright,isthebackboneforefficienthandlingoftroublecallsandforpreciseanalysisoftheseriousnessofproblems.rpit/(Pfj~4v,~.rP~,./(~f@@)pi'Q'h11 Financing1976wasthesecondlargestfinancingyearintheCompany'shistorywith$308millionofsecuritiessold.ThatfigureincludedPP8L'slargestsingleofferingeverundertakenintheformof$150millionoffirstmortgagebonds.Weanticipateour1977securitysalestobearound$235million.Thisfigureislowerthanlastyearbecauseourconstructionexpenditureshavesomewhatmoderated,andourcashneedsareexpectedtobehelpedbyaone-time,catch-uppaymentfromAlleghenyElectricCooperativeforits10percentinterestinourSusquehannanuclearplant.However,largefinancingprogramsare,forthetimebeing,anunavoidablewayoflifeforPP8L,andfinancingprogramsfor1978and1979areexpectedtoincrease.WeareverypleasedwiththeacceptanceoftheDividendReinvestmentPlanwhichlastyearresultedinourissuingmorethan700,000sharesofcommonstock.TheplanallowsinvestmentofdividendsfromallclassesofPP&Lstockinourcommonstockata5percentdiscountwithnobrokeragefee.During1976,about$14.3millionwasinvestedthroughtheplan,$7.8millioninreinvesteddividendsand$6.5millioninoptionalcashpayments.Thisamountedto17percentofthemoneyweraisedbysellingcommonstock.LaborRelationsBymajorityvote,about4,500PP&Lemployeeschosetoberepresentedbyanewunionandratifiedanewthree-yearlaborcontractwiththeCompanyduring1976.Thepriortwo-yearlaborcontractbetweentheCompanyandtheEmployeesIndependentAssociationhadanexpirationdateofJuly25.UnderprovisionsofU.S.laborlawtheIBEW(InternationalBrotherhoodofElectricalWorkers)wasallowedtofileapetitionwiththeNLRB(NationalLaborRelationsBoard)forarepresentationelection.TheUWUA(UtilityWorkersUnionofAmerica),aswellasano-unionoption,werealsoallowedtoappearontheballotinanNLRBsupervisedelection.Inarun-offelectionafteranindecisivefirstvote,Local1600-IBEWwascertifiedasthenewbargainingunitforthe4,500employees.Another270employeesintheScrantonareawerealreadyrepresentedbyLocal1520-IBEWsothatnowallofPP&L'snonsupervisoryemployeesarerepresentedbylocalunitsofonenationalunion.AftertheelectionwascertifiedinlateJuly,negotiationsforanewcontractwerebegunandbothsidesagreedtoworkonaday-to-daybasisundertheoldcontractwhichexpiredonJuly25.AnagreementwasreachedonSeptember8andratifiedbytheunionmembershiponSeptember24.TheScrantonlocalhadearlieragreedtoessentiallythesamecontractasthenewlocal.Termsofthethree-yearcontractcalledforan8.5percentwageincreasefor1976,an8percentincreasefor1977andaspeciallydesignedwagereopenerin1978.Fringebenefitsspreadoverthethreeyearsaddanother3.4percenttothecontract.Thethirdyearwagereopeneranda"meet-and-discuss"provisionareconsideredinnovationsinelectricutilitycontracts.Thewagereopenercallsforan"either/or"decisionbyanarbitratorifanagreementcannotbereachedthroughthenormalbargainingprocesswithinaspecifiedtimeperiod.Ifanimpassewerereached,boththeunionandmanagementwouldsubmittheirproposalstoanarbitratorwhomustchooseoneortheotherproposalinitsentirety.However,negotiationsbetweentheCompanyandunionmaycontinueuntilthearbitratorreachesadecision.Inanyevent,continuationofthecontractforathirdyearisassured.Themeet-and-discussprovisionputsacontractualobligationonbothunionandmanagementtomeetattherequestoftheothertoresolveanycontractissuesthatariseorothersubjectsofmutualinterest.Ifagreementsarereached,theycanbeputintoeffectbymutualconsent.TheCompanyandtheunionlocalsseethemeet-and-discussprovisionasanopportunitytoworkoutbetterwaysofdoingthingsaswellasameansofsettlingdisputesinaspiritofcooperation.12 AnalysisofStatementofIncomeThefollowinganalysishighlightschangesinthefinancialresultsoftheCompanyasreflectedontheStatementofIncomeshownonpage17.Theperiodscomparedaretheyears1975to1974and1976to1975.ReturnforCommonShareownerDuring1975and1976,commonshareownersincreasedtheirinvestmentintheCompanyby$190millionor36percentthroughreinvestedearningsandproceedsof$140millionfromtheissuanceof7.6millionsharesofnewCommonStock.Earningsapplicabletocommonstockincreased$9.4millionand$5.7millionin1975and1976,respectively.Earningspershareofcommonstockwere$2.87in1975and$2.68in1976.53.102.802.702.50EarningsPerShare12MonthsEndedEachQuarterDollarsPerShare3.102.70CostofFixedIncomeSecuritiesTheincreaseinlong-termdebtinterestchargesanddividendsonPreferredandPreferenceStockwasduetoissuanceofsecuritiesprincipallytofinancetheconstructionofnewfacilitiesandtherefinancingofmaturingdebtwithsecuritiesbearinghigherinterestrates.During1975and1976,outstandinglong-termdebtincreasedby$268millionandPreferredandPreferenceStockby$145million.Theannualinterestanddividendrequirementsonlong-termdebtandPreferredandPreferenceStockoutstandingatDecember31,1976were$91.6millionand$36.6million,respectively.2.4019721973197419751976TheCompany's1975and1976earningshavebeenadverselyaffectedbythehighercostsofprovidingelectricsewiceandthelackoftimelyraterelief.TimesInterestChargesEarned12MonthsEndedEachQuarterTimesEarned(PreTax)InterestandDividendCostThechangefromtheprioryearininterestchargesanddividendsonPreferredandPreferenceStockwere:19751976MillionsofDollarsInterestchargesLong-termdebt..........Short-termdebt..........OtherDividendsonpreferredandpreferencestock.........$16.811.9(3.3)0.9(0.2)0.14.98.9TheCompanypresentlyhasamiddle-of-the-roadbondratingbyelectricindustrystandards(RatedDoubleAbyMoody'sandFitch'sandAPlusbyStandard8Poor's).Oneofthemostimportantmeasuresindeterminingacompany'sbondratingandcreditstandingisitsabilitytocoverinterestpayments(Seeadjacentchart).19721973197419751976InterestchargeshavebeenIncreasingmorerapidlythantheearningsavailabletocoverthesechargesresultingInadeteriorationoftheTimesEarnedRatio.13 ElectricrevenuesQuantityofsalesto:Ultimatecustomers..Othersforresale....Rateincreases..........Fueladjustmentclauses.Other(includingtaxsurcharge)............Steamrevenues.Total.....$12.819.3(6.0)0.37.440.455.333.81.67.371.1101.11.0(1.1)$72.1100.03.5AveragePriceOfElectricityAllCustomersCentsPorKwh3.53.02.52.0FuelAdjustmentTaxSurcharge3.02.52.01.51.0BaseRate1.51.019721973197419751976TheabovechartshowsthattheIncreaseInthocostoffuelhasboonthomainfactorIntherecentpriceriseofelectricity.The1976averagebaserateforailcustomersIsaboutthesamaasItwasIntheearly1960s.OperatingRevenuesThechangeinoperatingrevenuesfromtheprioryearisattributabletothefollowing:19751976MillionsofDollarsBankloansandcommercialpapernotesareusedtoprovideworkingcapitalandinterimconstructionfinancing.Interestonsuchdebtvariesfromyeartoyearduetotheamountofshort-termdebtoutstandingandtheinterestratesineffect.Formoreinformationonshort-termdebtseeNote4toFinancialStatementsonpage25.EnergySalesandOperatingRevenuesTheCompanyderivesabout99%ofitsoperatingrevenuesfromsupplyingelectricserviceandthebalancefromsupplyingsteamforheatingandotherpurposesinthecityofHarrisburg.RatesapplicabletosalestoultimatecustomersareregulatedbythePennsylvaniaPublicUtilityCommission(PUC)andaccountedfor98%oftheCompany'srevenuefromenergysalesin1976.TheFederalPowerCommission(FPC)regulatessalestoothersforresale.TheCompany'stotalelectricenergysalesincreasedapproximately0.8%in1975.Contractualsalestoaneighboringutility,whichhadresultedinrevenuesof$6.1millionin1974,werediscontinuedin1975.Excludingsalestothisutility,theCompany'sgrowthinenergysaleswas2.6%in1975,withresidentialsalesup5.0%,commercialsalesup7.0%andindustrialsalesdown2.1%.Thereductioninsalestoindustrialcustomerswasmoderatedbytheadditionofamajorindustrialcustomerinmid-1974.Excludingsalestothiscustomer,industrialsaleswouldhavedecreased7.3%in1975,reflectingthedeclineinindustrialeconomicactivity.Energysalesincreased6.5%in1976withincreasesinresidentialsalesof6.6%,commercialsalesof6.5%andindustrialsalesof6.6%.Theincreaseinindustrialsalesduring1976reflectsanimprovementintheeconomyandindustrialactivitywithintheCompany'sservicearea.Formoreinformationonenergysalesseethediscussionunder"EconomicRecoveryNudgesEnergyUseUp"onpage4.RateincreasesaffectingultimatecustomersbecameeffectiveinJanuary1974($19.1millionannually),September1975($21.0millionannually),April1976($20.0millionannually)andAugust1976($37.3millionannually).Theincreaseinrevenuesduring1976duetorate14 increasesreflectsacarryoverinto1976ofapproximately$16.0millionapplicabletotheSeptember1975increase,$24.3millionapplicabletotheAprilandAugust1976increasesand$0.1millionfromarateincreaseaffectingresalecustomersthatbecameeffectiveinNovember1976.Formoreinformationonratefilingsseethediscussionunder"HigherRatesAllowed"onpage3.TheCompany'stariffsincludefueladjustmentclauseswhichadjustpricesforelectricserviceforvariationsinthecostoffuelusedtogenerateelectricity.Revenuesfromthefueladjustmentclausestotaled$134.5millionin1975and$168.3millionin1976,reflectingtheincreasedleveloffuelcostsandadditionalenergysales.NetCostofEnergyThenetcostofenergyincludesfuelexpensepluspowerpurchaseslesspowersoldtootherutilities.IncludedinpowerpurchasesisthevalueofelectricitygeneratedduringthetestperiodfortheCompany'snewgeneratingunits.FuelThecostoffuelconsumedincreasedduring1975and1976asaresultofgreatergenerationofenergyandincreasesinthecostoffuelspurchased.Thequantityofenergygeneratedduring1975increasedduetogreateravailabilityofcoal-firedgeneratingunitsandtheMartinsCreekNo.3oil-firedgeneratingunitwhichbegancommercialoperationinOctober1975.Increasedgenerationduring1976resultedprimarilyfromafullyear'soperationoftheMartinsCreekunit.Theaveragecostoffuelsconsumedincreasedduring1975and1976duetothecombinedeffectsofhighercoalpricesandthecostofoilconsumedatMartinsCreekUnitNo.3,whichhasacostperkwhgeneratedapproximatelytwicethatoftheCompany'scoal-firedunits.Theaveragecostoffuelconsumedperkwhgeneratedwas0.88centsin1974,1.04centsin1975and1.17centsin1976.Thecostoffuelconsumedwhichisrecoverablethroughfueladjustmentclausesisdeferreduntiltheperiodinwhichsuchcostsarebilledtocustomers.InterchangePowerSalesThetotalelectricenergyavailableforsaleincludesenergygeneratedbytheCompany'splantsandpowerFuelExpenseFuelexpenseiscomprisedofthefollowing:197419751976MillionsofDollarsCostoffuelconsumedElectric...............Steamheat............Totalcostoffuelconsumed........219.0273.2326.3Lessincreaseinfuelcostsdeferredtomatchrevenuesfromfueladjustmentclauses....26.61.6Totalfuelexpense...$192.4271.6$215.2269.2323.13.84.03.24.5321.8CostofFuelConsumedThechangefromtheprioryearinthetotalcostoffuelconsumedisattributabletothefollowing:19751976MillionsofDollarsElectricQuantityofelectricitygeneratedAveragecostoffuelsburned............$13.317.940.736.054.053.90.2(0.8)$54.253.1SteamheatTotalQuantityofenergysold......Averagepriceofenergysold.OtherTotal.$47.2(7.9)18.4(5.7)(1.5)0.9$64.1~(12.7InterchangeSalesThechangeinInterchangepowersalesfromtheprioryearisattributabletothefollowing:19751976MillionsofDollars15 purchasedfromothers,afterdeductingCompanyusesandlinelosses.During1975and1976,approximately31%and29%,respectively,ofthetotalenergyavailablewassoldtootherutilitiesunderinterconnectionarrangements.AsrequiredbyboththePUCandtheFPC,suchsalesarenotrecordedasOperatingRevenuesbutarecreditedtoOperatingExpensesontheStatementofIncome.Thequantityofinterchangepowersoldincreasedduring1975duetogreateravailabilityofgeneratingunits,theadditionofMartinsCreekUnitNo.3,theabsenceofcontractualsalestoaneighboringutilityandtheCompany'srelativelyfavorablegeneratingcostscompared,tothoseofotherinterconnectedcompanies.During1976,increasedsalestocustomersreducedthequantityofeconomicpoweravailableforsaletointerconnectedcompanies.During1976therewasanarrowingofthedifferentialbetweentheCompany'scostofgeneratingelectricityandthepricereceivedforpowersoldontheinterchange,whichpricereflectsasplittingofthedifferencebetweenthebuyer'sandtheseller'scostsofgeneration.TheaveragepricetheCompanyreceivedforinterchangepowersaleswas1.76centsperkwhin1974,1.97centsperkwhin1975and1.90centsperkwhin1976.TheseamountsweresubstantiallyinexcessoftheCompany'saveragefuelcosts.ExpendituresForElectricFacilities6ltlionsOfDollars$3.03.02.52.5the"Depreciation"sectioninNote1toFinancialStatementsonpage23.AllowanceforFundsusedDuringConstructionTheAllowanceforfundsusedduringconstructionhasincreasedsubstantiallyduringthepasttwoyearsasaresultoftheCompany'sextensiveconstructionprogramandtherelatedcarryingcostsofsecuritiesissuedtofinancetheconstructionexpenditures.During1975and1976theaverageratesusedtocomputetheallowancewereequivalentto8.3%and7.9%,respectively.TaxesSeeNote9toFinancialStatementsonpage26forinformationrelatingtoincometaxesandothertaxes.2.01.52.01.5WagesandEmployeeBenefitsandOtherOperatingCostsTheincreasesinwagesandemployeebenefitsandotheroperatingcostssuchasmaterialsandsupplies,rentsandinsuranceprincipallyreflecttheeffectsofinflationandincreasesassociatedwithoperationandmaintenanceofnewfacilitiesplacedinservice.DepreciationIncreaseddepreciationexpenseisduetonewfacilitiesplacedinservice,includingMartinsCreekUnitNo.3whichbegancommercialoperationin1975.ForadditionalinformationconcerningareductionintheCompany'scompositedepreciationratefor1976,see1.01976'77'78'79'80'81Total'77-'81DCostofElectricFacilitiesatEndof19760ExpenditurestoConstructNewElectricFacilitiesandAcquireNuclearFuelFinancialhealthoftheCompanyisnecessarytoraisethelargeamountsofmoneyrequiredtofinancetheconstructionofelectricfacilities.Plannedconstructionexpendituresinthenextfiveyearsareexpectedtobe$2.2billioncomparedto$2.8billionoffacilitiesattheendof1976,afterbeingInbusinessfor56years.1.016 Statementofincome1976197519741973ThousandsofDollars1972OperatingRevenues(Note2)$644,147544,129472,036384,814345,792OperatingExpensesNetcostofenergyFuelPowerpurchasesInterchangepowersalesWagesandemployeebenefitsOtheroperatingcosts.DepreciationIncometaxes(Note9)Taxes,otherthanincome(Note9)OperatingIncomeOtherIncomeandDeductionsAllowanceforfundsusedduringconstructionIncometaxcredits(Note9).Other-netIncomeBeforeInterestChargesInterestChargesLong-termdebtShort-termdebtandother.IncomeBeforeNonrecurringCredit.NonrecurringCreditRelatedtoAccountingChange,NetofIncomeTaxes($4,831)(Note3)321,78329,657(160,163)191,27782,58376,12162,47843,82849.526505,813138,33445,19214,4571,38161,030199,36479,7837,47087,253112,111271,63637,698(172,823)136,51171,77368,36958,54047,29840,669423,160120,96936,60511,2013,15450,960171,92967,9326,45674,38897,541192,35324,176(108,723)107,80667,37454,48952,39939,21135,571356,850115,18620,7325,0763,41829,226144,41251,1499,94661,09583,3174,162125,57715,299(70,175)70,70157,42145,23448,83733,94330,005286,14198,67314,967911,30016,358115,03143,2034,91648,11966,91295,22013,514(34,569)74,16555,22039,51241,44626,08625,658262,08783,70514,647334(305)14,67698,38136,5073,95340,46057,921NetIncome-BeforeDividendsonPreferredandPreferenceStock.DividendsonPreferredandPreferenceStock.......EarningsApplicabletoCommonStock(Note3)112,11197,54187,47966,91257,92133,36824,50919,65617.19114,526378,74373,03267,82349,72143,395EarningsPerShareofCommonStock(Note3)(a)BeforeNonrecurringCreditNonrecurringCredit$2.68$2.682.872.872.88.193.072.572.482.572.48IAverageNumberofSharesOutstanding(thousands).DividendsDeclaredPerShareofCommonStock29,367$1.8025,4591.8022,0671.7719,3591.6817,5131.64(a)Basedonaveragenumberofsharesoutstanding.SeeaccompanyingNotestoFinancialStatements.17 BalanceSheetAssetsDecember3119761975ThousandsofDollarsUtilityPlantPlantinservice-atoriginalcostElectricSteamheatLessaccumulateddepreciationConstructionworkinprogress-atcostNuclearfuelinprocess-atcost........$2,090,2827,8962,098,178458,6971,639,481720,54420,0842,380,1091,992,6737,8052,000,478406,3131,594,165430,5336,5292,031,227InvestmentsAssociatedcompanies-atequity........................Nonutilitypropertyandotherinvestments-atcostorless15,3277,54822,87532,2217,16539,386CurrentAssetsCash(Note4)Accountsreceivable(lessreserve:1976,$1,925;1975,$1,346)CustomersOtherNotesreceivable(principallyfromassociatedcompany)Recoverablefuelcosts.Coalandfueloil-ataveragecostMaterialsandsupplies-ataveragecostOther14,95549,20522,85729,57041,67074,88519,0687,219259,42914,83236,24316,81732,17837,15468,31822,6165,995234,153DeferredDebits4,884$2,667,2977,1182,311,884SeeaccompanyingNotestoFinancialStatements.18 LiabilitiesDecember3119761975ThousandsofDollarsCapitalization(a)Shareownersinvestment(Note5)PreferredstockPreferencestockCommonstockCapitalstockexpense(deduction)Earningsreinvested(Notes6and7)$231,375210,000495,008(10,220)237,9671,164,130156,3?5210,000412,303(8,801)212,550982,427Long-termdebt1,161,3192,325,4491,032,9802,015,407CurrentLiabilitiesLong-termdebtduewithinoneyear.Commercialpapernotes(Note4).AccountspayableTaxesaccrued.Deferredincometaxesapplicabletorecoverablefuelcosts.DividendspayableInterestaccruedOther20,67560,01260,34212,56422,06023,00222,58911,257232,50110,96673,63051,28120,19919,66919,36221,6179,719226,443DeferredandOtherCreditsDeferredinvestmenttaxcreditsDeferredincometaxesOther.56,52636,86015,961109,347$2,667,29731,84922,71315,47270,0342,311,884(a)SeeScheduleofCapitalStockandLong-TermDebtonpage20.SeeaccompanyingNotestoFinancialStatements.19 ScheduleofCapitalStockandLong-TermDebtDecember31,19764,17822,8786,30040,00022,2377,76375,000(a)$231,375PreferenceStock-nopar,cumulative,authorized5,000,000shares$8.00series,outstanding350,000shares..................$8.40series,outstanding400,000shares..................$8.70series,outstanding400,000shares..................$9.25series,outstanding200,000shares..................$11.00series,outstanding500,000shares..................$13.00series,outstanding250,000shares$35,00040,00040,00020,000(b)50,000(b)25,000$210,000CapitalStock(ThousandsofDollars)(Note5)PreferredStock-$100par,cumulative4M'/o,authorized629,936shares,outstanding530,189shares.......$53,019Series,authorized5,000,000shares3.35'/0,outstanding41,783shares...4.40'/0,outstanding228,773shares..4.600/o,outstanding63,000shares...7.40'/o,outstanding400,000shares..8.600/o,outstanding222,370shares..9.000/o,outstanding77,630shares...9.24'/o,outstanding750,000shares..Long-TermDebt(ThousandsofDollars)FirstMortgageBonds2/4~loseriesdue1977.............3/s'/oseriesdue1978.............2%loseriesdue1980.............3/e'/0seriesdue1982.............10i%%d'/oseriesdue1982.............3N'/0seriesdue1983.............3%'/oseriesdue1985.............4/s'/oseriesdue1991.............4~/s'/oseriesdue1994.............5%'/0seriesdue1996.............6%'/0seriesdue1997.............7/oseriesdue1999.............8~/e'/0seriesdue1999.............9'loseriesdue2000.............7/i'/oseriesdue2001.............7/s/0seriesdue2002.............7h'/oseriesdue2003.............9~/"loseriesdue2004.............93/4'/0seriesdue2005.............9'/"/oseriesdue2005..............8~/"/oseriesdue2006.............4A'/0to5/opollutioncontrolseriesAdueannually$500,1977-1983;$900,1984-2002;$7,400,2003Notes7'lodue1980OtherUnamortizeddiscountandpremium-net.Lessamountduewithinoneyear........$20,0003,00037,0007,500100,00025,00025,00030,00030,00030,00030,00040,00040,00050,00060,00075,00080,00080,000125,000(b)100,000(b)150,000(a)28,0001,165,50020,0005501,186,050(4,056)1,181,99420,675$1,161,319CommonStock-nopar,authorized50,000,000shares,outstanding30,803,318shares..............$495,008(c)(a)Issuedin1976.(b)Issuedin1975.(c)CommonStockissuedduring1976and1975wasasfollows(sharesandamountinthousands):19761975SharesAmountSharesAmountPublicoffering.....................3,500$67,9353,000$51,450Dividendreinvestmentplan.........71614,2683015,595Employeestockownershipplan....35755~4251~829583~301~57045Theamountsshownaboveforthedividendreinvestmentplanexcludeinstallmentsreceivedatyear-endforsharesissuedinJanuaryofthefollowingyear(thousandsofdollars):1976,$464;1975,$718.SeeaccompanyingNotesIoFinancialStatements.20 StatementofChangesInFinancialPositionSourceofFundsOperationsNetincome(1974includes$4,162nonrecurringcredit).Charges(credits)againstincomenotinvolvingworkingcapitalDepreciationNoncurrentdeferredincometaxesandinvestmenttaxcredits-net'............AllowanceforfundsusedduringconstructionOther.1976197519741973ThousandsofDollars197266,91257,92162,47831,789(45,192)4,669165,85558,54015,701(36,605)7,464142,64152,3998,790(20,732)520128,45648,83711,282(14,967)220112,28441,4467,984(14,647)22092,924$112,11197,54187,479OutsidefinancingCommonstockPreferredstockPreferencestockFirstmortgagebonds.Otherlong-termdebt.Short-termdebt-netincreaseWorkingcapital-decrease(a)Investmentinassociatedcompanies-decreaseOther-net.82,70575,000150,000253307,95816,8946,424$497,13157,76335,15670,000225,000208352,97115,166(b)25,000180,00036045,658286,174685510,778415,31540,90040,000108,00020,024208,9243,1562,672327,03646,94035,00075,0008,34220,231185,51383598279,118ApplicationofFundsConstructionexpenditures.NuclearfuelinprocessAllowanceforfundsusedduringconstruction$394,23813,555(45,192)362,601342,4962,793(36,605)308,684267,7243,736(20,732)250,728(14,967)209,529(14,647)204,107224,496218,754SecuritiesretiredFirstmortgagebondsOtherlong-termdebtShort-termdebt-netdecrease8,0003,05413,61824,67293,00011211,879104,99118,63218,63210,04156,63166,67215,00010,05725,057Dividendsonpreferred,preferenceandcommonstockWorkingcapital-increase(a)AcquisitionofHersheyElectricCompany......Investmentinassociatedcompanies-increase.Other-net86,69415,309(b)7,85570,68658,89782,75350,03743,3306,62423,9902,4274,3053497,131510.778415.315327,036279,118(a)Excludesshort-termdebtandlong-termdebtduewithinoneyear.(b)Thenetchangesinworkinpcapitalresultedprincipallyfromthefollowing:1976,increasesinaccountsreceivable,accountspayable,andfuelinventory,andadecreaseinaccruedtaxes;1975,increasesinnotesreceivable,accountspayable,accruedtaxes,dividendspayableandaccruedinterest.SeeaccompanyingNotestoFinanciaiStatements.21 StatementofEarningsReinvestecI197619751974ThousandsofDollars19731972Balance,January1.NetIncome......DividendsDeclaredPreferredstockPreferencestock.CommonstockBalance,December31(Notes6and7)..$212,550112,111324,66113,12820,24053,32686,694$237,967185,69597,541283,2369,39315,11646,17770,686212,550157,11387,479244,5929,39310,26339,24158,897185,695140,23866,912207,1507,5519,64032,84650,037157,113125,64757,921183,5686,4338,09328,80443,330140,238NotesToFinancialStatementsDecember31,1976and19751.SummaryofAccountingPoliciesAccountingSystemAccountingrecordsaremaintainedinaccordancewiththeUniformSystemofAccountsprescribedbytheFederalPowerCommission(FPC)andadoptedbythePennsylvaniaPublicUtilityCommission(PUC).PrlnclplesofConsolldafIonTheBalanceSheetatDecember31,1976includestheconsolidatedaccountsoftheCompanyanditswholly-ownedelectricdistributionsubsidiary,HersheyElectricCompany,whichwasacquiredDecember31,1976.Allsignificantintercompanytransactionshavebeeneliminated.SeeNote11toFinancialStatements.AssociatedCompaniesInvestmentsinunconsolidatedsubsidiaries(allwholly-owned)andinSafeHarborWaterPowerCorporation(representingone-halfofthatcompany'svotingsecurities)arerecordedusingtheequitymethodofaccounting.TheCompany'sunconsolidatedsubsidiariesareengagedincoalminingoperations,holdingcoalreserves,oilpipelineoperationsandrealestate.TheCompanybelievesthatitsfinancialpositionandresultsofoperationsarebestreflectedwithoutconsolidationofthesesubsidiariessincetheyarenotengagedinthebusinessofgeneratinganddistributingelectricity.Ifalltheunconsolidatedsubsidiarieswereconsideredintheagg'regateasasinglesubsidiary,theywouldnotconstitutea"significantsubsidiary"asthattermisdefinedbytheSecuritiesandExchangeCommission.UtllltyPlantAdditionstoutilityplantandreplacementsofunitsofpropertyarecapitalizedatcost.Costsofdepreciablepropertyretiredorreplacedareremovedfromutilityplantandsuchcosts,plusremovalcosts,lesssalvage,arechargedtoaccumulateddepreciation.Costsoflandretiredorsoldareremovedfromutilityplantandanygainsor22 lossesarereflectedontheStatementofIncome.Allexpendituresformaintenanceandrepairsofpropertyandthecostofreplacementofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.AllowanceforFundsusedDuringConstructionAsprovidedintheUniformSystemofAccounts,thecostoffundsusedtofinanceconstructionworkinprogressiscapitalizedaspartofconstructioncost.TheAllowanceforfundsusedduringconstruction(Allowance),shownontheStatementofIncomeunderOtherIncomeandDeductions,isanoncashitemequaltotheamountsocapitalizedandservestooffsettheactualcostoffinancingconstructionworkinprogress.SinceFebruary1,1974,inaccordancewithproceduresprescribedbythePUC,theCompanyhascomputedtheAllowanceratesemiannuallyonan"after-tax"basisusingaspecifiedrateforcommonequityandthecostofdebtandpreferredandpreferencestocksecuritiesissuedinthetwelvemonthsprecedingthesemiannualcomputation.InFebruary1977,theFPCissuedanorderwhichestablishedaspecificformulatobeusedincomputingthemaximumAllowancerate,effectiveJanuary1,1977.TheCompanydoesnotanticipatethatadoptionofthenewFPCmethodwillsignificantlyeffecttheamountofAllowancetheCompanywouldotherwiserecordin1977.DepreclatlonForfinancialstatementpurposes,thestraight-linemethodofdepreciationisusedtoaccumulateanamountequaltothecostofutilityplantandremovalcosts,lesssalvage,overtheestimatedusefullivesofproperty.Provisionsfordepreciationresultedinanannualcompositerateof3.2'/0in1976and3.3'/oin1975.Thelowercompositeratefor1976reflectschangesmadeasofJanuary1,1976inestimatedusefullivesofcertainfacilitiesinaccordancewiththePUC'sAugust1976rateorder.RevenuesRevenues,arebasedoncyclebillingsrenderedtocertaincustomersmonthlyandothersbimonthly.TheCompanydoesnotaccruerevenuesrelatedtoenergydeliveredbutnotbilled.FuelCostsRecoverableUnderFuelAd/ustmentClausesTheCompany'stariffsincludefueladjustmentclausesunderwhichfuelcostsvaryingfromthelevelsallowedinapprovedrateschedulesarereflectedincustomers'illsafterthefuelcostsareincurred.Thechargetoexpenseforfuelcostsrecoverableinthefuturethroughapplicationoffueladjustmentclausesisdeferredtotheperiodsinwhichthesecostsarebilledtocustomers.SeeNote3toFinancialStatements.IncomeTaxesTheCompanyanditssubsidiariesfileaconsolidatedFederalincometaxreturn.Incometaxesareallocatedtotheindividualcompaniesbasedontheirrespectivetaxableincomeorloss.IncometaxesareallocatedtoOperatingExpensesandOtherIncomeandDeductionsontheStatementofIncome.IncometaxcreditsrecordedunderOtherIncomeandDeductionsresultprincipallyfromthetaxdeductionsrelatedtointerestexpenseassociatedwithfinancingconstructionworkinprogress.DeferredtaxaccountingisfollowedforitemswheresimilartreatmentinratedeterminationshasbeenorisexpectedtobepermittedbythePUG.Theprincipalitemsareacceleratedamortizationofcertifieddefensefacilitiesandpollutioncontrolequipment,deductionofcostsofremovingretireddepreciableproperty,thatportionoftaxdepreciationarisingfromshorteningdepreciablelivesby20'/oundertheclasslifedepreciationsystem,fuelcostsrecoverableunderfueladjustmentclauses,theforcedoutagereserveandthecostoffuelconsumedduringthetestperiodofnewgeneratingfacilities.Taxreductionsarisingprincipallyfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddifferentlyfortaxcomputationthanforbookpurposesareaccountedforundertheflow-throughmethod.23 Investmenttaxcredits,whichresultinareductionofFederalincometaxespayable,aredeferredandamortizedovertheaveragelivesoftherelatedproperty.During1976theCompanyadoptedanEmployeeStockOwnershipPlan(ESOP)whichpermitstheCompanytoclaimanadditional1'/oinvestmenttaxcredit.AnamountequaltothisadditionalcreditispaidtothetrusteefortheESOPtoacquireCommonStockoftheCompanyforemployees.SeeNote9toFinancialStatements.RetirementPlanTheCompanyhasaRetirementPlancomposedoftwoparts:(1)anoncontributoryportionwhichprovidesbenefitsforalleligibleactiveemployeeswiththefullcostabsorbedbytheCompany,and(2)avoluntaryportioninwhichcontributionsaremadebybothemployeesandtheCompany,butthefullcostofpastserviceandPlanimprovementsisbornebytheCompany.Approximately95'/oofeligibleactiveemployeesaremembersofthevoluntaryportionofthePlan.CompanycontributionstothePlanincludeamountsrequiredtofundcurrentservicecostsandtoamortizeunfundedpastservicecostsoverperiodsofnotmorethan20years.SeeNote8toFinancialStatements.ForcedOutageReserveAself-insurancereserveisprovidedtocovertheincreasedlevelofpowercostswhichareexperiencedwhenanyoftheCompany'smajorgeneratingunitsareforcedoutofserviceduetodamagecausedbyaccidentorotherunforeseeninsurableoccurrences.Increasedpowercostsresultingfrompurchasingorgeneratingreplacementpowerathighercostsorlossofinterchangesalesinexcessof$0.5millionthrough1975and$1.0millioneffectiveJanuary1,1976foreachaccidentoroccurrencearechargedtothereserve.AstocertainoftheCompany'slargegeneratingunits,costschargeabletothereservearelimitedto$10millionsinceoutsideinsuranceiscarriedtocovercostsinexcessofthatamount.ThereserveisestablishedonthebasisofhistoricalexperienceandhasbeenrecognizedinratemakingproceduresbythePUC.AtDecember31,1976andDecember31,1975thereservebalancewas$13.9millionand$11.9million,respectively.ReclasslllcatlonsCertainreclassificationshavebeenmadeinprioryears'mountstomakethemcomparabletotheclassificationofsuchitemsin1976.2.RateFilingsInMarch1975,theCompanyfiledwiththePUCforageneralincreaseinelectricrevenues.Asummaryoftherateincreasesresultingfromthisfiling,basedonannualizedrevenuesasofJuly31,1975,isasfollows(millionsofdollars):EffectiveOateofIncreaseSeptember13,1975(interim).April14,1976(Interim).......August26,1976(final).......AnnualIncrease$21.020.037.3$76.3Thetotalincreasegranted($78.3millionor14.6'/o)representstheentireamountrequestedbytheCompany.Revenuesfor1976increasedapproximately$40.3millionover1975asaresultoftheaboverateincreases.TheFPCpermittedarateincreaseaffectingresalecustomers,amountingtoapproximately$1millionannually,tobecomeeffectiveinNovember1976,subjecttorefund.Revenuesfor1976includeapproximately$0.1millionapplicabletothisincrease.3.NonrecurringCreditRelatedtoAccountingChangeTheNonrecurringCreditshownontheStatementofIncomefor1974representsthecumulativeeffecttoDecember31,1973ofachangeinaccountingforfuelcosts,netofrelatedincometaxes.Theaccountingchangerelatedtodeferringthechargetoexpenseforaportionoffuelcoststotheperiodsinwhichsuchcostsarebilledtocustomersthroughapplicationoffueladjustmentclauses.24 Inthefollowingsummary,earnings"AsReported"includestheNonrecurringCreditrecordedin1974,andearnings"Restated"reflectstheeffectofretroactiveallocationtoprioryearsoftheNonrecurringCreditrelatedtothechangeinaccountingforfuelcosts:197419731972EarningsApplicabletoCommonStock(a)AsReported.........$67,82349,72143,395Restated............63,66151,06643,161EarningsPerShareofCommonStock(b)AsReported.........$3.072.572.48Restated.............2.882.642.46(a)Thousandsofdollars.(b)Basedonaveragenumberofsharesoutstanding.4.CompensatingBalancesandShort-TermDebtInordertoprovideloansforinterimfinancingandprovideback-upfinancingcapabilityforcommercialpapernotestheCompanyhadlinesofcreditwithvariousbanksaggregating$200millionatDecember31,1976.UseoftheselinesofcreditwasrestrictedatDecember31,1976totheextentof$4millionbyshort-termbankloanstocertaincompaniesinvolvedinfuelsupplyoperations.Bankborrowingsaregenerallyforoneyearandmaybeprepaidatanytimewithoutpenalty.NobankloanswereoutstandingatDecember31,1976orDecember31,1975.OftheCompany'slinesofcredit,$144millionwasmaintainedbycompensatingbankbalancerequirements(notlegallyrestrictedastowithdrawal)and$56millionbypaymentofcommitmentfees.Compensatingbankbalancerequirementsareonanaverageannualbasiswhichapproximated$13.9millionatDecember31,1976.Commitmentfeesonanannualizedbasisapproximated$0.3millionatDecember31,1976.Commercialpapernotesaregenerallysoldforperiodsrangingfrom30to60days.TheweightedaveragediscountratesapplicabletocommercialpapernotesoutstandingatDecember31,1976and1975were4.7o/oand5.6/o,respectively.Themaximumaggregateamountofshort-termdebtoutstandingattheendofanymonthduring1976was$194.6millionandduring1975was$142.6millionwithanaverageaggregatedailyamountoutstandingduringtheseyearsof$129.6millionand$85.2million,respectively.Theapproximateweightedaverageinterestrateofshort-termdebtduring1976was5.5o/oandduring1975was7.3'/o,calculatedbydividingthetotalshort-termdebtinterestexpensefortheyearbytheaverageaggregatedailyamountofshort-termdebtoutstandingduringtheyear.5.CapitalStockCommonStockof$495,008,000atDecember31,1976includes$464,000cashinstallmentsreceivedunderadividendreinvestmentplanasconsiderationfor20,852sharesofCommonStockwhichwereissuedinJanuary1977.Eachofthefollowingseriesof.stockcontainssinkingfundprovisionsdesignedtoretiretheseriesataredemptionpriceof$100pershare:SharestobeRedemptionRedeemedAnnuallyPeriodPreferredStock7.40'/oSeries16,0001979-20039.24/oSeries(a)30,0001981-2005PreferenceStock$9.25Series(b)40,0001977-1981$11.00Series(a)25,0001981-2000$13.00Series(a)12,5001980-1999(a)TheCompanyhastherighttoredeemoneachsinkingfundredemptiondateadditionalsharesuptothenumberofsharesofthisSeriesrequiredtoberedeemedannually.(b)lnJanuary1977,theCompanyredeemed40,000sharesofthePreferenceStock,$9.25Series.Capitalstockexpenserepresentscommissionsandexpensesincurredinconnectionwiththeissuanceandsaleofcapitalstock.OfthecapitalstockexpensebalanceatDecember31,1976,approximately$3.0millionapplicabletothepreferredandpreferencestockserieswhichareto25 beredeemedthroughsinkingfundprovisionswillbeamortizedtoEarningsReinvestedastherespectiveseriesofstockareredeemed.Noamortizationplanisineffectforcapitalstockexpenseapplicabletootherissuesofcapitalstock.6.DividendRestrictionsTheCompany'scharterandmortgageindenturesrestrictthepaymentofcashdividendsonCommonStockundercertainconditions.Underthecharterprovisions,whicharethemorelimiting,norestrictionsareeffectiveonthepaymentofsuchdividendsoutofcurrentearnings.TheamountofearningsreinvestedfreeofrestrictionsunderthecharteratDecember31,1976was$193.4million.7.HydroelectricProjectsTheCompanyoperatestwohydroelectricprojectsunderlicensesissuedbytheFPC.CertainreservesrequiredtobeprovidedundertheFederalPowerActhavenotbeenrecordedpendingapprovaloftheamountsbytheFPC.TheCompanyestimatesthatsuchreservesapplicabletotheyearsfrom1946wouldnotexceed$3.0millionatDecember31,1976.9.TaxesIncometaxexpensefortheyears1976and1975isrecordedontheStatementofIncomeasshownbelow:19761975ThousandsofDollarsIncludedinOperatingExpensesProvisionFederal...........State.~...........Deferredincometaxes.....Investmenttaxcredits,net..IncludedinOtherIncomeandDeductionsReductioninprovision.....Totalincometaxexpense$6566,7667,4228,74527,66143,828~14.457)$29,37122,5478,22130,7683,54212,98847,298(11,201)36,097contributionsandcertainotherminorchangestocomplywiththeEmployeeRetirementIncomeSecurityActof1974.Theseamendmentsincreasedtheunfundedpastservicecostandvestedbenefitsbyabout$3.6million,andtheCompany'sannualcostbyabout$1.0millioncommencingin1977,includingamortizationoftheincreasedpastservicecostover20years.8.RetirementPlanObligationsoftheCompany'sRetirementPlanarecurrentlyfundedthroughaTrustFund.AtJune30,1976,theendoftheFund'smostrecentfiscalyear,theFund'sassetsatmarketwere$92.3millionandatcostwere$94.5million.Pensioncostsfortheyears1976and1975were$9.8millionand$8.8million,respectively.BasedontheFund'sassetsatcost,atJune30,1976theactuariallycomputedunfundedpastservicecostwas$28.6million.AsofthesamedatevestedbenefitsexceededthecostbasisoftheFund'sassetsby$20.0million.PlanamendmentseffectiveasofJuly1,1976,subjecttoInternalRevenueServiceapproval,provideforincreasedbenefits,reducedemployeeInvestmenttaxcreditsof$29.5millionand$14.5millionfor1976and1975,respectively,havebeenreflectedasreductionsoftheprovisionforFederalincometaxeswithequivalentamountsincludedininvestmenttaxcredits,net.InvestmenttaxcreditseliminatedtheCompany'sFederalincometaxliabilityfor1976andresultedinacredittotheprovisionforincometaxesofapproximately$5.9millionrelatedtoacarrybackofinvestmenttaxcreditstoprioryears.Totalincometaxexpensefor1976hasbeencreditedbyapproximately$5.0millionrepresentingadjustmentsofprioryears'axliabilities.Theprincipaladjustment,relatedtoadoptionofthemodifiedhalf-yearconventionmethodofcomputingtaxdepreciationintheCompany's1975Federalincometaxreturnfiledin26 September1976,reducedtotalincometaxexpensebyapproximately$2.8million.Taxesotherthanincometaxeschargedtooperatingexpensewere:Portionoftaxdepreciationundertheclasslifedepreciationsystem.....Forcedoutagereserve.....Other.$6,463(1,041)3323$8,7454,540(3,726)2,7283,542Deferredincometaxesresultfromthefollowingitems:19761975ThousandsofDollarsStategrossreceiptsStatecapitalstock........Stateutilityrealestate....Socialsecurityandother..Total..............19761975ThousandsofDollars$28320237568,8607,2848,0525,9804,2943,649$49,52640,669IncometaxexpensedifferedfromtheamountcomputedbyapplyingthecombinedFederalandStatecorporateincometaxrate(52.94'/oinboth1976and1975)topre-taxincomeasfollows:Net'income................Incometaxexpense........Pre-taxincome.......Indicatedincometaxexpenseatcombinedtaxrate...................Reductionsdueto:Allowanceforfundsusedduringconstruction.....Taxdeductioninexcessofbookexpense:Depreciation..........Taxandpensioncost..Other.Total.................Incometaxexpense.........Effectiveincometaxrates....19761975ThousandsofDollars$112,11197,54129,37136,097$141,482133,638$74.90170,74823,92519,37915,0673,3543,18445,530$29,371208o/o9,1312,9983,14334,65136,09727.0o/oDuring1976,approximately$6.8millionoftheamountprovidedfor1975incometaxeswastransferredontheBalanceSheetfromTaxesaccruedtoDeferredincometaxes.SuchamountrepresentstheincometaxesapplicabletoadeductionclaimedontheCompany's1975incometaxreturnforfuelexpensesrelatedtothetestingoftheMartinsCreekNo.3Unitinexcessofexpensesrecordedonthebooks.10.RentalsandNoncancelableLeaseCommitmentsTotalrentalschargedtooperatingexpensefortheyears1976and1975amountedto$10.5millionand$9.5million,respectively.AtDecember31,1976theCompanywascommittedforminimumrentalstotaling$59.3millionundernoncancelableleasesexpiringatvariousdatesto1996.Theminimumrentalsareasfollows(millionsofdollars):1977,$5.6;1978,$5.4;1979,$5.1;1980,$4.9;1981,$4.5;1982through1986,$14.8;1987through1991,$11.3;1992through1996,$7.7.Theserentalsareapplicabletothefollowingcategoriesofproperty:combustionturbinegeneratingequipment,$16.6million;railroadcoalcars,$27.8million;computerequipment,$11.1million;andconstructioncranes,$3.8million.GenerallytheleasescontainrenewaloptionsandobligatetheCompanytopaymaintenance,insuranceandotherrelatedcosts.Theimpactuponnetincomeineachoftheyears1976and1975wouldbelessthan1'/oifallnon-capitalizedfinancingleaseswerecapitalizedandamortizedonastraight-linebasiswithinterestaccruedonthebasisoftheoutstandingleaseliability.InDecember1976,theCompanyenteredintoacommitmenttoleasecertainoilstoragefacilitiesin1977.ItisexpectedthatthefinalleaseagreementwillresultintheCompanypayingleaserentalsofapproximately$2.8millionannuallyforaperiodof20yearscommencingin1977.27 11.AcquisitionOnDecember31,1976theCompanyacquiredalloftheoutstandingcapitalstockofHersheyElectricCompany(HEC),anelectricdistributioncompany.TheacquisitioncostofthecapitalstockandtherepaymentofalldebtowedbyHECapproximated$7.9million.TheassetsofHECatDecember31,1976were$8.8millionandtherevenuesandnetincomefortheyear1976were$11.9millionand$0.4million,respectively.12.CommitmentsandContingentLiabilitiesTheCompanyestimatesthatabout$1.51billionwillberequiredtocompleteconstructionprojectsinprogressattheendof1976.Ofthisamount,approximately$1.15billionisrelatedtocompletionoftheCompany'stwonucleargeneratingunitsattheSusquehannaPowerPlant.TheCompany'sestimatedconstructionprogramfor1977is$390million,including$14millionfornuclearfueland$28millionrelatedtoenvironmentalprotectionfacilities.Inconnectionwithprovidingforitsfuturebituminouscoalsupply,theCompanyatDecember31,1976hadguaranteedcapitalandotherobligationsofcertaincoalsuppliers(includingownedcoalcompanies)aggregating$162.2million.13.ReplacementCostData(Unaudited)TheimpactoftherateofinflationexperiencedinrecentyearshasresultedinreplacementcostsofproductivecapacitythataresignificantlygreaterthanthehistoricalcostsofsuchassetsreportedintheCompany'sfinancialstatements.Incompliancewithreportingrequirements,estimatedreplacementcostinformationisdisclosedintheCompany'sannualreporttotheSecuritiesandExchangeCommissiononForm10-K.14.SummaryofQuarterlyResultsofOperations(Unaudited)QuarterEndedOperatingRevenuesEarningsOperatingNetApplicabletoIncomeIncomeCommonStockThousandsofDollarsEarningsPerShareofCommonStock(a)1976March31........June30September30....December31(b).$166,269149,281149,580179,017$34,36028,00635,24140,727$25,18921,28130,42335,218$17,78113,60321,28226,077$0.670.460.700.851975March31..........June30.September30..~...December31150,106128,984125,917139,12229,83326,74230,16834,22623,67318,2240.7822,24816,6770.6525,54219,4610.7426,07818,6700.70(a)Quarterlyearningspersharearebasedontheaveragenumberofsharesoutstandingduringthequarter.(b)Resultsforthefourthquarterof1976includeareductioninincometaxexpenseof$24millionduetoincreasedtaxdepreciationapplicabletoMartinsCreekUnitNo.4whichbegantestoperationinDecember1976anda$2.1millionchargetoexpense(netofincometaxes)toadjusttheamortizationofdeferredfuelcostsfortheyears1970-1975totheactualfueladjustmentrevenuesbilledduringthoseyears.28 Auditors'pinionHaskins8SellsCertifiedPubticAccountantsAuditors'pinionTwoBroadwayNewYork10004TheShareownersandBoardofDirectorsofPennsylvaniaPower&LightCompany:WehaveexaminedthebalancesheetofPennsylvaniaPower&LightCompanyasofDecember31,1976and1975,therelatedstatementsofincome,earningsreinvested,andchangesinfinancialpositionfortheyearsthenendedandthescheduleofcapitalstockandlong-termdebtasofDecember31,1976.Ourexaminationwasmadeinaccordancewithgenerallyacceptedauditingstandardsand,accordingly,includedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircumstances.lnouropinion,suchfinancialstatementsandschedulepresentfairlythefinancialpositionoftheCompanyatDecember31,1976and1975andtheresultsofitsoperationsandchangesinitsfinancialpositionfortheyearsthenended,inconformitywithgenerallyacceptedaccountingprinciplesconsistentlyappliedduringtheperiodsandonabasisconsistentwiththeprecedingyear.February3,1977FISCALAGENTSSECURITIESLISTEDONEXCHANGESTRANSFERAGENTSFORPREFERRED,PREFERENCEANDCOMMONSTOCKIndustrialValleyBankandTrustCompany634HamiltonMallAllentown,Pennsylvania-18101IrvingTrustCompanyOneWallStreetNewYork,NewYork-10015PennsylvaniaPower&LightCompanyTwoNorthNinthStreetAllentown,Pennsylvania-18101REGISTRARSFORPREFERRED,PREFERENCEANDCOMMONSTOCKTheFirstNationalBankofAllentownHamiltonMallatSeventhAllentown,Pennsylvania-18101MorganGuarantyTrustCompanyofNewYork23WallStreetNewYork,NewYork-10015DIVIDENDDISBURSINGOFFICEFORPREFERRED,PREFERENCEANDCOMMONSTOCKTreasurerPennsylvaniaPower&LightCompanyTwohforthNinthStreetAllentown,Pennsylvania-18101NEWYORKSTOCKEXCHANGEFirstMortgageBonds,10N%Seriesdue19824%%PreferredStock(Code:PPLPRB)4.40%SeriesPreferredStock(Code:PPLPRA)8.60%SeriesPreferredStock(Code:PPLPRG)9.24%SeriesPreferredStock(Code:PPLPRM)PreferenceStock,$8.00SeriesCode:PPLPRJ)PreferenceStock,$8.40SeriesCode:PPLPRH)PreferenceStock,$8.70SeriesCode:PPLPRI)PreferenceStock,$11.00Series(Code:PPLPRL)PreferenceStock,$13.00Series(Code:PPLPRK)CommonStock(Code:PPL)PHILADELPHIASTOCKEXCHANGE4yr%PreferredStock3.35%SeriesPreferredStock4.40%SeriesPreferredStock4.60%SeriesPreferredStock8.60%SeriesPreferredStock9%SeriesPreferredStock9.24%SeriesPreferredStockPreferenceStock,$8.00SeriesPreferenceStock,$8.40SeriesPreferenceStock,$8.70SeriesPreferenceStock,$11.00SeriesPreferenceStock,$13.00SeriesCommonStock29 StatisticalSummary19761975197419731972FinancialDataCapitalprovidedbyinvestors-thousands(a)(b)Returnonaveragecapitalprovidedbyinvestors-%(c).Returnonaveragecommonequity-%(c)....Fixedcostrateonlong-termdebtandpreferredandpreferencestock-%(a).....CommonstockdataBookvalue(a)(c)Dividendpayoutrate-%(c)...........~...Dividendyield-%(d)Priceearningsratio(c)(d)Timesinterestearnedbeforeincometaxes(c).Numberofshareowners-preferred,preferenceandcommon(a)...............SalesDataElectriccustomers(a)Electricenergysales-millionsofkwhResidentialCommercialIndustrialOther.8.8311.618.7612.528.4912.657.9011.897.5311.607.917.766.826.175.99$23.45688.18.32.62184,841936,2197,2674,8747,48173220,35423.17639.16.92.80171,766917,9206,8184,5757.02070019,11322.916211.55.32.92154,126902,1486,4944,2757,1701,02418,96322.51648.47.63.15142,235886,3786,3244,2626,8811,39818,86521.78676.510.33.05135,399864,4395,9853,9336,45863717,013$2,406,1362,100,0031,828,8881,533,8611,375,031Sourcesofenergysold-millionsofkwhGeneratedCoal-firedsteamstationsOil-firedsteamstation(e)...........Combustionturbinesanddiesels....Hydroelectricstations..............25,7511,9474080925,3841,1498485927,4762,241(8,757)(1,847)19,1138,5282.7828,5472,126(8,358)(1,961)8,9313.105,717,0004,122,00092.44.53.179.075.470.131.41.04PowerpurchasesInterchangepowersales..................Companyusesandlinelosses.............Totalelectricenergysales20,354Averageannualresidentialkwhuse..........Averagepriceperkwhforallcustomers-centsGenerationDataGeneratingcapability-kilowatts(a).........5,717,000Peakdemand-kilowatts(f).................4,514,000Generationbyfuelsources-%Coal~.90.2Oil(e)7.0Hydro2.8Steamstationavailability-%Coal-fired~~~~~~~~~~~~~"~"~78.1Oil-fired(e)68.8Steamstationutilization-%Coal-fired........~70.6Oil-fired(e)26.4Fuelcost-centsperkwh1.17(a)Yearwnd.(b)Includesshort-termdebt.long-termdebt,preferredandpreferencestockandcommonequity24,18624777225,2051,570(6,079)(1,733)18,9638,2872.444,901,0003,772,00096.01.03.072.366.70.8824,78227381625,8711,968(7,237)(1,737)18,8658.2532.004,903,0003,662,00095.81.13.180.671.60.5019,09760182420,5221,784(3,586)(1,707)17,0138,0321.994,108,0003,598,00093.12.94.076.764.30.49(c)ReflectsretroactiveallocationtoprioryearsofNonrecurringCreditrecordedIn1974relatedtochangeInaccountingforfuelcosts.(d)Basedonyear-endmarketprice.(e)Firstoil-firedsteamstationunitbegancommercialoperationIn1975andthesecondunitbegantestoperationInDecember1976.(I)Winterpeakshownwasreachedearlyinsubsequentyear.In1976,peakIsthatwhIchwouldhaveoccurredIfa50A)voltagereductionhadnotbeenIneffect.Actual1976peakwas4,425.000kilowatts.30 QuarterlyDividendsandMarketPriceofVotingSecuritiesfor1976and1975ReportedMarketPrice-DollarsperShare1976CommonStock..........PreferredStock4th%Series3.35%4A04.60%7.40%(a)............86P9.00'lo9.24%QuarterlyDividendsDeclared$0.451.1250.83751.101.151.852.152.25(b)1stQuarterHighLow21%191/s534737'h3451th44'/s5048'h988797922ndQuarterHighLow20'/i19'h51~h47~/43633504648'h46959096893rdQuarterHighLow21/42052'h4836'/43451'ls47'ls49y447'h9892'/s97'/494104ih99'/44thQuarterHighLow22@20%54'h50'h3836~h53th48524999'h9510198106'h103PreferenceStock$8.00..................$8.40................~.$8.70..................$9.25(a)$11.00........~.~......$13.00.................2.002.102.1752.31252.753.2586778781%8883'h8980'/48982'h9287'h94829487'/i9488111'h102'h112107112r/s109M125'h117'h124119130120'h90@82t/495'h919991'h114th109rh130'h1251975CommonStock.......$0.452015Ys19r/s17ls19r/s17s/s19/s17%PreferredStock4'%eries3.35%4.4p46p7.40%(a)...8.60%9.PPPreferenceStock$8.00..............$840..............$8.70..............$9.25(a)$11.00.............$13.00.............1.1250.83751.101.151.852.152.252.002.102.175(c)(d)3.255244%3531'h50'h41'h50449379'h958085698973927912010549'h45'h4945'h4944h88'h8488'h8190829088918895888275817679748578'h84'h77'/4847888'/s8288'h80'/s87'h80'h118111103100'h106'h100'/4118110'h119'h112343335323532'h47'h43484446'h43'h47'h45'h47454945TheprincipaltradingmarketforallclassesofstockistheNewYorkStockExchangeexceptforthe335%,460%and900%SeriesPreferredStockswhIcharelistedonthePhiladelphiaStockExchangebutaretradedprincipallyoverthecounter.Pricerangesforthe3.35%,4.60%and9.00%SeriesPreferredStocksarebasedonthebestavailablehighandlowbidpricesduringtheperiodsandshouldbeviewedssreasonableapproximations.(a)StockwasaprivateplacementandIsnotpubliclytraded.(b)StockissuedJune1976,thothirdquarterdividendwas$2.67andthofourthquarterdividendwss$2.31.(c)StockissuedInSeptember1975,fourthquarterdividendwas$2.3362.(d)StockissuedAugust1975,thethirdquarterdividendwas$1.01andthefourthquarterdividendwas$2,75.31 OfficersDlfectolsJACKK.BUSBY,ChairmanoltheBoardandChiefExecutiveOflicerROBERTK.CAMPBELL,PresidentROBERTR.FORTUNE,ExecutiveVicePresident,FinancialBROOKER.HARTMAN,ExecutiveVicePresident,OperationsJOHNT.KAUFFMAN,VicePresident,SystemPower&EngineeringEMMETM.MOLLOY,VicePresldont,HumanResource&DevelopmentLEONL.NONEMAKER,VicePresident,DivisionOperationsCHESTERR.COLLYER,TreasurerNORMANW.CURTIS,VicePresident,Engineering&ConstructionJOSEPHL.DONNELLY,VicePresident,FinanceLOUISEA.EARP,AssistantSecretaryCHARLESE.FUQUA,VicePresident,SusquehannaDivisionCHARLESJ.GREEN,VicePresident,HarrisburgDivisionRICHARDH.LICHTENWALNER,VicePresident,informationServicesCARLR.MAIO,VicePresident,LehighDivisionJAMESJ.McBREARTY,VicePresident,NortheastDivisionEDWARDM.NAGEL,VicePresident,GeneralCounselandSecretaryHERBERTD.NASHJR.,VicePresident,Consumer&CommunityServicesEDWINH.SEIDLER,VicePresident,DistributionBRENTS.SHUNK,VicePresident,LancasterDivisionJEANA.SMOLICK,AssistantSecretaryDONALDJ.TREGO,AssistantTreasurerGEORGEF.VANDERSLICE,VicePresidentandComptrollerPAULINEL.VETOVITZ,AssistantSecretaryHELENJ.WOLFER,AssistantSecretaryCorporateManagomontCommluoo:JackK.Busby,chairman;Messrs.Campbell,Fortune,Horlman,Kauffmon,Molloy,NcnomakorondFredKornotJr.~manager-corporateAdministrationsorvingaslhocommlttoo'soxocutivosecretary.TheexecutiveorganizationchartcttheCompanylsincludedinthePP&LProfile.JACKK.BUSBY,AllentownChairmanoftheBoardandChiefExecutiveOflicerROBERTK.CAMPBELL,AllentownPresidentRALPHR.CRANMER,WilliamsportMemberolBoardofDirectors-GritPublishingCompanyEDGARL.DESSEN,HazletonPhysician-RadiologistROBERTR.FORTUNE,AllentownExecutiveVicePresident,FinancialBROOKER.HARTMAN,AllentownExecutiveVicePresident,OporationsHARRYA.JENSEN,LancasterExecutiveVicePresident,ArmstrongCorkCompany,ManufacturerofinteriorfurnishingsandspecialtyproductsVIRGINIAH.KNAUER,Philadelphia"LectureronConsumerAffairsW.DEMINGLEWIS,BethlehemPresidentolLehighUniversityJOHNA.NOBLE,ScrantonChairmanoltheBoardandChlelExecutiveOflicerolClelandSimpsonCompany,DepartmentstoresRUTHPATRICK,PhiladelphiaChiefCuratoroftheLimnologyDepartment,AcademyofNaturalSciencesNORMANROBERTSON,PittsburghSeniorVicePresidentandChiefEconomistolMellonBank,N.A.JOSEPHT.SIMPSON,HarrisburgChairmanoftheBoardofHarscoCorporation,DiversifiedmanufactureroffabricatedmetalproductsCHARLESH.WATTSII,Vienna,Va.PresidentandChiefExecutiveOflicerofTheWolfTrapFoundationforthePerformingArtsExecutiveCommittoo:JackK.Busby,chairman;Messrs.Campbell,Cranmor,Harfman,JensenandSimpson.AuditCommluoo:Mr.Jensen,Dr.PatrickandMr.Watts.'Mr.Hartmanwillnofbenomlnatodtotheboardofdirectorsattho1977annuolmootingofsharoownorsinviewofhisrotiromonfonJune1,1977."VirginiaKnauor,forrnorspoclalassistantforconsumeraffairsfoProsldontFord,wasoloclodaPP&LdlrocloroffoclivoMarch1,1977.SubsequenttoMrs.Knauor'sselection.CliffordL.AloxandorJr.,whowasadirectorduringallof1976,roslgnodfromtheboardwhenhobecameSecretaryoftheArmyintheCarteradministration.TheCompanyfilesForm10-KannuallywiththeSecuritiesandExchangeComrnlsllo.Form10-KIscomposedofthisAnnualReporttosharoownorsandadditionalInformationconcernIngtheCompanyandItsoperations.ThIsadditionalInformationwillbeavailablewithoutchargeafterApril1,1977bywritingtoPennsylvaniaPower&LightCompany,TwoNorthNinthStreet,Allentown,Pa.18101,attention:Mr.GeorgeI.Kllne,InvestorServicesManager.32 PAL'sNewPresident<xm4',RobertK.Campbell,47,isPPLL'snewpresident.JackK.Busby,Companypresidentsince1957,moveduptochairmanoftheboardwhileremainingaschiefexecutiveofficer.PP&L'sboardofdirectorselectedthetwototheirrespectivepositionsattheJanuary26,1977boardmeeting.'Campbellhadbeengeneralmanager-4,administrationforWesternElectric,thenationwidemanufacturingarmoftheBellSystem.TheCampbelldecisionwasmadebyaspecialcommitteeoftheboardwhichwasmadeupofMessrs.Busby,Cranmer,Jensen,LewisandSimpson.TheselectionfollowedmanymonthsofconsiderationonwhetherthefutureneedsoftheCompanywouldbestbeservedbybringinginfromoutsideanexecutiveatthetoplevel.CampbellisaChicagonative,anArmyveteran,andsince1967hasbeenanAllentownresidentveryactiveincivicaffairs.Hisadvancededucationspansthreeprofessions.Inengineering,hehasabachelor'sdegreefromtheIllinoisInstituteofTechnologyandamaster'sdegreeinmechanicalengineeringfromtheUniversityofillinois.Inbusi-nessadministration,hehasamaster'sdegreefromtheUniversityofChicago.Andinlaw,heholdsadoctorateofjurisprudencefromLoyolaUniversity.CampbelljoinedWesternElectricin1957asadevelopmentengineerattheHawthorneWorksinChicago,advancingtodepartmentchiefin1961.Hewaspromotedtoassistantmanagerin1963andwasassignedtothePublicRela-ItionsDivisionatWesternElectric'sheadquartersinNewYorkCity.In1965,hewastransferredtoWestern'snewplantinShreveport,La.,asassistantmanagerofengineer-ingandwasnamedmanagerthefollowingyear.CampbellmovedtoAllentowninJune1967afterhewaspromotedtomanager-developmentandmanufacturingengineeroftheWesternElectricAllentownWorks.Hewasadvancedtodirectorofman-ufacturingin1969andwasnamedgeneralmanageroftheReading,Pa.,Worksin1971.In1972,hewasnamedgeneralmanageroftheAllentownWorks,servinguntilhisappoint-mentinJune1976asgeneralmanager-admin-istrationforWesternElectric'sManufacturingDivisionatcorporateheadquartersinNewYork.CampbellisaregisteredprofessionalengineerandholdsmembershipintheAmericanSocietyofMechanicalEngineers.HealsoisamemberoftheillinoisBarAssociation.Campbellhasalreadybegunanintensivepro-gramofvisitingthroughouttheCompany'sserviceareatogettoknowasmanyemployeesaspossibleandtobecomefamiliarwiththecomplexitiesofthebusiness.Heseesabasicchallengeintheincreasinglydifficulttaskofbalancingtheoften-conflictingneedsofthecustomersPPLLserves,theemployeeswhoprovidetheserviceandtheinvestorswhoputupthemoneytomaketheservicepossible. PPaLPENNSYLVANIAPOWER8LIGHTCOMPANYTwoNorthNinthStreet,Allentown,Pa.18101Telephone:AreaCode215821-5151LITHOIHU.S.A. PENNSYLVAN(APOWER8cLlGHTCOMPANY~1973annualreport HIGHLIGHTSRevenues-thousandsNetIncome-thousands.EarningsApplicabletoCommonStockAmount-thousands.................,..Asa%ofAverageCommonEquity.......EarningsPerShare-basedonaveragenumberofsharesoutstandingDividendsPerShare.CommonStockDataReportedmarketpricepershareHigh.Low.BookvalueatyearendDividendpayoutrate-%Dividendyield-%(a)Priceearningsratio(a)UtilityPlant-thousands(a)Basedonyear-endmarketprice.1973$384,814~$66,912$49,72111.7$2.57$1.68$26$19$22.31658.47.8$1,846,332Wg~1972345,79257,92143,39511.72.481.642722s/421.63666.510.21,637,0401971300,70748,57237,18011.82.371.6026'/421s/s20.60686.410.51,458,7071970255,31334,93528,50910.21.971.6027'/s20'/s19.62816.812.01,275,8661969223,38834,60930,78712.52.321.6034'/223'/419.10696.510.61,120,022ContentsTheYearinReviewTheFuelSituationServiceAreaMapFinanclalsNotestoFinancialStatementsDirectorsandPrincipalOfficers2-910-121314-2020-2324CoverPhotos:Fronl:PP&L'snewPowerControlCenterinAllentownwillbethenervecenteroftheCompany'selectricgenerationanddistributionsystemwhenitbecomesfullyoperationalinMay1974.Itfeaturesthenewest,mostup-to-datecomputerandelectronicequipmentavailable.WhencompleteditwillbeInconstantcomputercommunicationwiththePennsylvania-NewJersey-Maryland(PJM)'nterconnectioncontrolcenteratValleyForge.Back:PP&L'snewestpowerplant,MontourSteamElectricStationatWashingtonville,Pa,northofDanville.UnitNo.2wentintocommercialoperationinApril1973.BothunitsranextremelywellthroughouttheyearandplayedanimportantpartintheCompany'simproved1973earnings.~((((((DONRCC(Cl(OtA(II PP&L:ENERGYINPERSPECTIVEg)l(">>"~jf,'jii,,',",'Il.'l',,',i','"",l'lg'('j""jest.(IW'l,Despitelongstandingpredictionsofim-pendingdomesticshort'agesofoilandnaturalgas,thesevereconsequencesoftheAraboilembargohavegenerallycomeasasurprise.Theimpacthasbeensosubstantialandsoabruptthattherehavebeenwidespreadfeelingsofshock,angeranddisbelief.Andconsiderablescapegoating.Inanyevent,therecentMideasteventsemphasizethatthenationwaslongoverdueinfacinguptothecomplexandcostlyrequirementsofes-tablishingareasonableself-sufficiencyofenergy.Inescapably,wenowhavebeforeusahugeandmultifacetedtask.WheredoesPP&Lstandintermsofthenewenergyscenario'?Herearesomepointsthatweparticularlywanttobringtoyourattention.PP&Lhasafavorablegeneratingca-pacityandfuelpositionatthistime.Gen-eratingequipmentperformanceisgood.Wehaveadequatecapacityreserves.Andno"old"powerplants.About96percentofourpowergenerationin1973camefromcoal-burninggeneratingunits.InearlyMarch,wehadanaverageof55daysofcoalstocksatourpowerplants.However,thesupplysituationisbecom-ingverytight.Morethanhalfourcoalisbeingproducedbyminesthatareen-tirelycommittedtoPP&L'sneedsonalong-termbasis.Ourfleetofunitcoaltrainsintegratesthesemineswithourmainpowerplants.Onereservationshouldbementioned.PP&Ldoesnotandcannotoperateasifitwereaseparateelectricalisland.Wearepartofaverylargeregionalpowersupplynetwork.Criticalregionalshort-agesoffuelsforelectricgenerationmightrequireustooperateourfacilitiesinwhateverwaysaredeterminedtobenecessaryfromthestandpointoftheoverallregional/nationalpublicinterest.In1974,conservationeffortswillprobablyresultinlessthananticipateduseofelectricity.Forthecurrentyear,kilowatt-hoursalesareforecasttobe19.7billioninsteadof20.7billion.Never-thelesstherevisedandlowerforecastprojectsa4.2percentincreaseoverkilowatt-hoursalesin1973.Themostnoticeableeffectsoftheconservationef-forthavecomefromreducedlightingandadjustmentofthermostats.Werec-ognizethattherearelimitstohowmuchreductioncanbeaccomplishedbychangingourlivinghabits.Additionalconservationresultswillprobablyde-velopmoreslowlybecausetheirrealiza-tionwilllargelydependuponthewilling-nessofcustomerstoinvestinnewandmoreefficientequipmentdesignedtoconserveelectricity.It'stooearlytopredictalltheeffectsreductionsintheuseofelectricitywillhaveonourearnings.Sinceourgenerat-ingplantsarecoal-firedwebelievethoseplantswillcontinuetorunatfullcapacity.Anyelectricitynotneededbyourcus-tomerscanbesoldtootherutilities.However,bulksalestootherutilitiesaregenerallyatalowerpricethanreceivedfromretailcustomers.Beyond1974,weexpectaresump-tionofyearlygrowthratesofseventoninepercent.Fortwomainreasons-(1)normalgrowtharisingfrommorepeo-ple,morejobs,morehomes,moregoodsandservices,andthedesireforabetterstandardofliving,and(2)thethrowoverdemandforelectricitycreatedbytheshortagesofoilandnaturalgas.Baseduponourevaluationofgrowthtrends,weareproceedingwithourpres-entconstructionprogramwithoutma-terialchange.Estimatedcostforthenextfiveyearsis$2.1billion.Theprogramisgearedtobringingonline3.7millionkilowattsofnewgeneratingcapacity-two800,000-kilowattoil-firedunitsatMartinsCreek(in1975and1977)andtwo1,050,000-kilowattnuclearunitsatournewSusquehannaStation(in1979and1981).Beyondthat,additionalcoal,nuclearandpumpedstoragecapacityisintheplanninganddevelopmentstage.Wehaveconsideredaprogramtocon-vertthenewMartinsCreekunitstocoal.Wehavedecidedagainstsuchactionatthistimebecausethemajorreconstruc-tioninvolvedwouldmakebothunitsto-tallyunavailableforthenextfewyears-aperiodwheneventheirlimitedoutputmaybemostvaluableandnecessaryfromacustomerservicestandpoint.Carryingoutourconstructionpro-gram,whichmeansbuildingthenewelectricfacilitiesthatwillhelptoalle-viatetheenergycrunch,lsinterlockedwithourabilitytoraisethemoneyre-quired.Sinceouroperationsprovideonlyabout25percentofourconstructionneeds,75percentofwhatweneedtobuildandexpandhastobefinancedbythesaleofsecuritiestoinvestors.Raisingnewcapitaldependsonin-vestorconfidence.Andsuchconfidence,inturn,dependsupongoodfinancialperformancebyPP&L.Inaneraofsteadilyrisingcosts,peri-odicrateincreaseswillbenecessary.Hopefully,itiswellunderstoodthatobtainingtheseincreases,onajustifiedbasis,ofcourse,iswhatultimatelymakesitpossibletofinancethenewfacilitieswhichourcustomersdependuponforservice.Itmaysoundstrange,butrea-sonableandtimelyrateincreasesareverymuchintheconsumerinterest.Thenationcanovercomethepresentenergyproblems.Itwilltaketime,atleastadecade.Plusagreatdealofpa-tience.Pluslargenewinvestmentsforoil,gasanduraniumexploration,forcon-structionofnewpipelines,refineries,coalmines,railfacilitiesandmanpowertrain-ing,inadditiontonewpowerplantsandotherelectricsupplyfacilities.Itwillalsobeessentialtohaveacontinuingandtotalcommitmenttoconservationofenergy.Oursocietydependsonadequatesup-pliesofenergy.Wecandothejobthathastobedoneifallofusworkatitto-gether.InPP&Lwewilldoourbesttodoourpart.Respectfullysubmitted,March5,1974JackK.Busby,President THEYEARINREVIEWIn1973werecordedmeasurableprogressinmanyareasofCompanyactivity.Revenuesreachedthe$385millionmark,up11.3percentover1972.Partofthisrise,ofcourse,camefromthe2.7percentratein-creaseallowedbythePennsylvaniaPublicUtilityCommission(PUC)ef-fectiveJune2,1973.Also,afterninemonthsofPUCin-vestigation,and4,000pagesoftesti-monyandexhibitmaterial,additionalratereliefaveraging5.7percentwasgrantedeffectiveJan.10,1974,foratotalincreaseof8.4percentor$28.5millioninnewannualreve-nues.Kilowatt-hourusageincreased5.7percentover1972intheresidentialcategory,8.4percentinthecom-mercialareaand6.5percentintheindustrialsector.Theoverallrateofgrowthwas10.9percent,includingcontractedsalestotheMetropolitanEdisonCompanywhichaccountedfor4.3percentoftheoverallgrowth.Allthisdespiteourintensiveeffortssince1972inurgingenergycon-servationmeasuresbyallofourcustomers.WedidbegintoseeareductionintherateofgrowthtowardtheendoftheyearafterPresidentNixon'scallforaconcertednationwideefforttosaveenergy.InNovember,PP&Lbegantonoticeacutbackinourcustomers'seofelectricity.ThedownwardtrendcontinuedthroughDecemberwhenkilowatt-hourusagebyourcustomerswasdownninepercentbelowestimates.WewereabletoattributetwopercentofthereductioninDecembertowarmer-than-normalweather.Theremainingsevenpercentrepresentstheeffortsofagreatmanypeopletouseelectricitysparingly.Especiallyobviouswaswidespreadcoopera-tioninnotinstallingoutdoorChrist-maslighting.EffectsonConstructionCertainlywehaveaskedourselveswhatimplicationsthisdeclineingrowthmayhaveonourlong-termconstructionprogram.Weconcludedthatwecannotre-gardthedeclineasmorethanatem-poraryleveling-offofthelong-termgrowthrate.Peoplecanonlycon-servesomuch.Forexample,theycan'tgoonsettingthermostatsbackanadditionalfivedegreeseverywin-ter.Wefeelthatdemandwilldropbacktoanewbaseandthencon-tinueitstraditionalsteadyclimbupwardasweareexpectedtoac-commodatethenormalgrowthofnewhomesandbusinessesinourservicearea.In1973alone,thenumberofcustomersweservedin-creasedbynearly22,000.Wearealsobeginningtoexperi-encea"throwover"effectthathasbeenoccurringassomepresentcustomersswitchfromotherenergysourcestoelectricityandnewcus-tomersselectelectricityinsteadofotherenergysourcestoservetheirneeds.Ifwearetomeetourmissionofplanningmanyyearsaheadtohavesufficientgenerationanddeliveryfacilitiesreadytomeetourcustom-ers'eedsdecadesfromnow,weobviouslycannotaffordawait-and-seeattitude.Wemustpressonwithourconstructionprograms.Asignificant1973milestoneinourconstructionprogramwasthecompletionandstart-upofthecoal-firedNo.2unitatMontourSteamElectricStationwhichwentintocommercialoperationinAprilof1973andadded750,000kilowattstoourgeneratingcapacity.TheCom-pany'stotalgeneratingcapacityatyear-endwas4,903,000kilowatts,nearlythreetimesourcapabilityattheendof1963.Meanwhile,workcontinuesontwo800,000-kilowattoil-firedunitsattheMartinsCreeksiteontheDelawareRiverwherewealreadyhavetwosmallcoal-firedunits.Attheendof1973UnitNo.3was68percentcompleteandNo.4was11percentcomplete.Thefirstofthebignewunitsisexpectedtobegintestoper-ationslater.thisyearwithanin-servicedatesetforearly1975.Workonthepipelinewhichistheplannedoildeliverysystemforthetwounitshasnotbegundespiteau-thorizationbythePUCinFebruary1973.AdditionalrequiredapprovalsmustbeobtainedfromtheDelawareRiverBasinCommissionandotherappropriateagenciesandauthori-ties.Inthemeantimeoildeliverybyrailisbeingplanned.Afulldiscus-sionofthefuelsituationfollowsonpage10. PP&L,incooperationwiththeWesternPrecipitationDivisionofJoyManufacturingCompany,hasinstalledapilotsulfurdioxideremovalsystemonSunburySteamElectricStation'sUnitNo.4,right.Theone-yearpilotprogramistestingawet-limestonescrubbersystem'sabilitytoremovesulfurdioxide(SO>)fromageneratingunit'sstackgasbeforeitcanbereleasedintotheatmosphere.During1973,coalwaskingatPP&L.About96percentofthenearly26billionkilowatt-hoursofelectricitygeneratedbyPP&Llastyearcamefromcoal-firedunits.Morethan70percentofthattotalcamefromtheBrunnerIslandgeneratingplant,shownbelow,andtheMontourplant,shownonthebackcover.Thefineperformancefrombothplantscontributedalargesharetoimproved1973earnings. 'Hler'1J~InAllentown,aseven-levelGen-eralOfficeadditionwascompletedinJunejustnorthofandconnectedtothepresent23-storyheadquartersbuilding.ThenewbuildingdoublesthefloorspaceoftheoriginalGen-eralOfficestructureandallowstheconsolidationofpersonnelfromsev-eralrentedofficeannexesscatteredindowntownAllentown.ThemainfeatureofthebuildingistheCompany'snewPowerControlCentershownonthefrontcover.Itincorporatesthenewestcomputerandelectronicequipmentandisoneofthemostup-to-datefacilitiesofitskindinthecountry.Thisequip-mentwillallowmonitoringandre-motecontroloffunctionsandopera-tionstoanextentneverbeforepossible.FortheCompanyanditscustomersitmeansgreaterreliabil-ityandhigheroperatingefficiency.Twoadditional800,000-kilowattoil-firedunitsaremovingalongonscheduleatMartinsCreek.Thefirst,UnitNo.3,isexpectedtobeginoperationearlyin197S.Althoughthepipeline,beingbuiltbyInterstateEnergyCompanytosupplycrudeandresidualoiltotheplant,isbeinghelduppendingapprovals,stop-gapraildeliveryoftheoilhasbeenarranged.P'.~,~Pc,IIrc'1rfFLCIPiComponentsoftworeactorpressurevesselscompletetheir1,000-milebargejourneyupthreeriversandacrosseightstates,fromMemphis,Tenn.toFreeport,Pa.FromtheretheyweretruckedtoMontourSteamElectricStationforstorageuntilextensivesitepreparationiscompletedattheCompany'sfirstnuclearstationnowbeingconstructednearBerwick.Becauseofthelonglead-timenecessaryinbuildinganuclearplant,thecomponentshadtobeorderedin1971evenbeforePP&LsubmitteditsapplicationtotheAtomicEnergyCommissionforaconstructionpermit.DeliverytotheMontoursitesavedseveralhundredthousanddollarsinout-of-statestoragefees.NuclearPlantConstructionUnderWayAfter31monthsofintensivereviewbytheAtomicEnergyCommission(AEC)andotherfederal,regional,stateandlocalagenciesofthesafetyandenvironmentalaspectsofourfirstnuclearplant,PPBLwasgiventhego-aheadbytheAEConNov.2tobeginconstructionoftheSusquehannaSteamElectricSta-tion.Earth-movingworkbeganthreedayslateratthe955-acresitenorthofBerwick.Thefirstofthetwin1,050,000-kilowattboilingwaterre-actorgeneratingunitsisscheduledtobecompletedin1979,thesecondin1981.Whencompleteditwillrep-resentnearlyone-quarteroftheCompany'sinstalledcapacityatthattime.Withapricetagofnearly$1.4 billion,thenuclearplantisthelarg-estsingleconstructionprojecteverundertakenbytheCompany.Evenwiththeverylargecapitalcosts,theCompanyexpectstoreal-izeverysignificantsavingsoverthe30-yearoperatinglifetimeoftheplant.Thisisduetothelowerand.morestablepricesweexpectfornuclearfuelcomparedtocoalandoil.Inatimeoftightoilsuppliesanddoubtoverenvironmentalrestric-tionsontheuseofcoal,nucleargenerationprovidesanattractiveal-ternativetoprovideanadequatesupplyofelectricenergywhilebe-ingbothenvironmentallyandeco-nomicallyattractive.EnergyandtheEnvironmentInexpandingourenergysupplywearedoingourbesttofindabalancebetweenadequateenergyandanacceptableenvironment.Ourobjectivecontinuestobetominimizetheimpactofouropera-tionsontheenvironment.TwoofourongoingenvironmentalprojectswerefocusedontheSun-burySteamElectricStationwherewehavetwoanthraciteandtwobi-tuminouscoal-firedgeneratingunits.Installationofa$5.5-milliondustcollectingsystemfortheanthraciteunitswascompletedinJune.Thecollectionequipmentisabagfilter-ingsystemwhichremovesflyashfromstackemissionsoftheanthra-cite-firedboilersattheplant.Eachofthefour"baghouse"structuresis71feetlong,40feetwideandninestorieshigh.Fiberglassbags,1,260ofthem,wereinstalledineachfilter-ingunit.Eachbagis30feetlongandafootindiameter.Thebags,inserieswiththeoldmechanicalcollectors,arenowre-movingbetterthan99percentoftheflyashfromexhaustgasesbe-foretheyreachthestacks.Wehadpreviouslyinstalledmechanicalandelectrostaticdustcollectingdevicesonallunitsattheplant.However,thecombinationwasfoundtobeun-satisfactoryontheanthraciteboil-ersduetospecialflyashentrapmentproblemsassociatedwithusinghardcoal.Variousstepsareunderwaytobringunderacceptablecontroltheparticulate,orflyash,emissionfromstacksonourotherbituminouscoal-burninggeneratingunitsthroughoutthePP&Lsystem.AlsoinstalledatSunburywasapilotsulfurdioxide(SO2)-removalsystemonUnit4whichburnsbitu-,minouscoal.Theprojectisthere-sultofajointresearchagreementbetweenPP&LandtheWesternPre-cipitationDivisionofJoyManufac-turingCompany.The'wetscrubber"system,whichusesalimestonewaterspraytoremoveSO2fromfluegas,isstillintheresearchstageandwehopetogainexperienceherethatwillbeusefulwhenadesignbasisforlargerbituminousunitsisdevelopedintheyears'ahead.Resultssofarareen-couragingandanextensionofthetestperiodforanotheryearisbeingnegotiated.Thecoalweburncontainsbothorganicandpyriticsulfur.Theor-ganicsulfurisinherentinthecoalandextremelydifficulttoremovepriortoburning.Butalargeper-centageofpyriticsulfurcanbere-movedfrombituminouscoal.Wearepresentlyinstalling,atourmines,mechanicalcleaningequipmentde-signedtoreducethepyriticsulfurcontentsufficientlytoprovidecoalwithatotalsulfurcontentofnotmorethan2.5percent.Weappreciate,ofcourse,thatwhentechnologytoremovesulfurandnitrogenoxidefromstackgasesbecomesareality,wemayhavetoinstalladditionalequipmenttomeetmorestringent.airpollutionstand-ardsinthefuture.InLancaster,theCompanywaspraisedfortheenvironmentalcom-patibilityofitsnew$1.1milliondowntownPrinceSubstation.Anat-tractiveeight-foot-highbrickwallscreensthelow-profilesubstationstructureandequipmentfromtheviewofpassersby.Thewallhasacolonialmotif,plantingsandotheraestheticallypleasingfeatures.IntheCompany'snortheastarea,demolitionworkwasbegunontheplantstructuresatourformerHautoandStantonsteamelectricstationswhichceasedoperationsin1969and1972respectively.Theplantswillberazedandthelandcontouredandplantedtorestoreittoacondi-tionenvironmentallycompatiblewiththesurroundingarea.FinancingAbout$225millionwasspentforex-pansionandimprovementofourfa-cilitiesin1973.For1974,thefigureisexpectedtoriseto$305million.Andforthefiveyears1974through1978,theamountis$2.1billion.Addedtothiswillbe$147millionwe'lneedtorepaymaturingdebtinthenextfiveyears. -Onlyaboutone-fourthofthemoneyweneedtofinancethiscon-structioncanbegeneratedinternallyfromCompanyoperations'.Therestmustcometromnewcapitalinvest-mentintheCompany.Tofinanceinpartourconstruc-tionprogramandtorepaymaturingdebtobligationsin1973,theCom-,panysoldcommonandpreferredstock,firstmortgagebondsandanunsecurednote.(Seepage18forasummaryofourbusiestyeareverinthecapitalmarkets.)During1974,weanticipatetheneedtoissueabout$250millionotnewsecurities.Tomaintaintheabil-itytoraisethisnewcapitalforourexpansionprograms,PP&Lmustcontinuetobeanattractiveinvest-mentandprovideafairreturnforin-vestors.ResearchAmericahasanationaldilemmatofaceupto.Whetherwecallitanenergycrisis,oracrunchorafuelproblem,thefactisourenergyde-mandislargerthanoursupply.Fortheshort-term,Americansarecombattingtheproblembyputtingthemselvesintoanemergencypos-ture,forsakinglargegrowthgainsandcuttingbackonenergyuse.That'spartotthelong-rangeso-lution,too.Butanequallyimportantpartisresearch.Thefederalgovern-mentisallocatingvastamountsotmoneyforresearchintheperfectionofthebreederreactorandinthesearchforalternatesourcesoten-ergy.Theelectricindustryisdoingthesamething.PP8L'sresearchbudgetisabout$2millionfor1974,ofwhichsome$360,000willgointoaliquidmetalfastbreederreactordemonstrationplanttobeconstructednearOakRidge,Tenn.Around85percentofthecountry'sutilitieshavepledgedover$300millionforthisdemonstra-tionprojectbeingbuiltbytheTen-nesseeValleyAuthorityandCom-monwealthEdisonCompany.NearlyamilliondollarsofPP8LmoneywillgototheElectricPowerResearchInstitute(EPRI)undersponsorshipoftheEdisonElectricInstitute,theindustry'stradeasso-ciation,whichisvastlyexpandingitsresearchprogram..Suchprojectsascoalgasifica-tionandliquefaction,thefuelcell,magnetohydrodynamics(MHD),nu-clearfusionandultra-highvoltageresearcharebeinggiventoppriority.Closertohome,PP8Lisbuildingan"EnergyConservationHome"atSchnecksville,northwestofAllen-town.Thehomeisprimarilyare-searchprojectdesignedtomakeoptimumuseofenergyineverywaypossibleinasingle-family-homewithoutchangingpeople'slifestyle.Thetwo-story,three-bedroomhousewillcontainexperimentalequipmentandsystemswhichwillbeconstantlymonitoredinanefforttofindanddocumentwaysofreduc-ingenergyuseandcuttingelectricaldemand.Theuniqueheatingsysteminte-gratessolarcollectionpanelsandheatreclamationdevicestorecoverwasteheatfromappliancessuchasdishwasher,washer,dryerandre-frigerator,aswellaswaste-waterheat,fireplacefluegasesandeventheheatofdecompositionintheseptictank.Basically,thehousewillbeheatedandcooledbyawater-sourceheatpunlp.Newconstructiontechniquesin-cludetheuseofstyrofoamsheath-ingandfoamed-in-placeurethanearounddoorsandwindows.Thehouseshouldbefullytested.andevaluatedby1975afteratypi-calfamilyhaslivedinthehome.PP8Lwillthenmaketheresultsknownandofferplansforthehometocontractors,buildersandthepublic.rEnergyConservationPP&Lhasbeenencouragingenergy,conservationsinceearly1972whenwecompletedadramaticturn-aroundinourmarketingpolicy.Werecognizedinthelate60sthatoursocietycouldnotgoonconsumingenergyresourcesattheeverin-creasingrateithadinthepast,andthatwastefulpracticesmustbeelim-inated.Ourobjectiveintheturn-aroundeffortwastoholddowntherateofriseinthedemandformoreandmoreelectricenergytogaintimetofindsolutionstotheproblemsbeforeus.Weturnedfrompromotingelectricusetourgingwiseuseofallformsofenergy,includingelectricity.MembersofourConsumer8CommunityAffairsDepartmenthavebeenworkingasconsultantsandhelpingourresidential,commercialandindustrialcustomers.findthemostefficientandwisestwaysofusingelectricity.Animportantpartotthisgroup'seffortshasbeenaninformationandeducationalprogramtoconvincethepublicoftheneedforconservation.Twopresentations,"TheEnergyCrisis"and"Homecology,"havebeengiventoover56,000people. OnanindividualbasisPPBLcon-sultantshavebeenadvisingresiden-tialbuildersanddevelopersonthelatesttechniquesforimprovingtheinsulatingqualitiesofhomesandapartmentsandhelpingintheselec-tionofenergy-efficientappliancesandheatingandcoolingequipment.Ourindustrialandcommercialconsultantshavebeenworkingwithcustomerstosetupenergyman-agementteamstoevaluateallenergyconsumptionwithintheirbusinessoperations.Theseteamsthenidentifyonacontinuingbasisthoseareaswherewastecanbeeliminated.Additionally,PP&L-sponsoredtrainingsessionsorenergyman-agementforumswereheldwithlocalandstategovernmentengineeringandoperatingpersonnel,andschoolbuildingmaintenanceengineersandadministrators.Alsoincludedwerearchitectsanddesignengineersandtopmanagersfromthelargestin-dustrialplantswithintheCompany'sservicearea.Withinourownoperationsatopspeedof50milesanhourwasdi-rectedforallemployeesdrivingonCompanybusiness,andasimilarre-strictionurgedinpersonaldriving.ThiseffortcameonaCompany-widebasisinJune,severalmonthsbeforeanationwidepleawasissuedbythePresident.Decorativelightingwaselimi-natedatallCompanyfacilitiesinMarch1973andheatingandlight-inglevelswerereducedinourbuild-ingssystemwideduringtheensuingmonths.ThroughDecembertheseeffortsamountedtoademandre-ductionofabout1,200kilowatts.~XP~+1)txA4PAurethaneplasticmixturewhichexpands,inafewminutes,to15timesitsliquidvolumeiscuttingbyhalfthetimeittakesaPP&Lcrewto"set"largetransmissionpoles.Theliquidispumpedaroundthepolewhereitbeginsto"cure"andriseorexpandlikebreaddough.Thefinishedproductisstrongerthanpackingtheholewithsoilandthefoamsealsoutmoistureandairinadditiontobeinginsect,rot,waterandcorrosion-proof.Theatomicabsorptionspectro-photometernowinuseattheCompany'sChemicalLaboratoryatHaztetondoes,inafewhours,analyticalworkthatusedtotakeafullday.Theinstrumentcandetectquantitiesof70differentmetallicelementsinsolutionwithanaccuracydowntopartsperbillioninasample. ExtensiveanalysisiscontinuingthroughouttheCompanytoseewherefurtherenergycutscanbemade.PeopleSignificanttoouremployees'e-velopmentin1973wastheinitiationofapprenticeprogramsintheline-man,electricrepairman,transporta-tionandundergroundrepairmanjobclassifications.Fortheemployeewhoentersanyoftheprogramsitwillmeaninten-sive,documentedon-the-jobandclassroomtrainingandtheopportu-nitytobecomeoneofthemostwell-trainedworkersintheCompany'shistory.Whilecontentdoesvary,ofcourse,therewillbethreeorfourlevelsineachoftheapprenticepro-gramsspanninga'three-orfour-yearperiod.Theon-the-jobtrainingportionoftheprogramsisdesignedtoinsurethateachpersonisgivenawiderangeoftasksuponwhichtobuildexperience,aswellaspreparetheemployeeforhigherleveltraining.Theprogramwillofferallwhopar-ticipateanequalopportunityforad-vancement.Nolongerwillsupervisorshavetorelysolelyonmemoryandjudgmenttodecidewhetheranemployeehasthenecessaryskillandexperienceforadvancement.Nowtherewillbedocumentedevidenceofatrainee'sexperienceandperformanceinnu-merousspecifictrainingareas.Thisisjustonewaywearetryingtoworksmarter.AnotherwaywearetryingtoworksmarterandmoreeffectivelyandtoincreaseproductivityinvolvestherealignmentofourEngineeringandNuclearDevelopmentdepartments.Inthepast,powerplantswereeithercoal-firedorhydroprojects,builtanddesignedonaone-at-a-timebasis.Anorganizationstruc-turedbyengineeringdisciplinewasabletocopewiththischallenge.Today,however,wefindour-selvesinamulti-plant,capital-in-tensivesituationwherelongleadtimesandgrowingenergydemandsresultinconcurrentplanning,designandconstructionofvarioustypesofpowerplants.Itisessential,there-fore,thatourorganizationalstruc-tureallowoptimumuseofourhumanresourcestocompleteprojectsonschedule,withinbudgetandwithinspecifiedqualitylimits.Accordingly,ourEngineeringandNuclearDevelopmentdepartmentswerereorganizedonaprojectbasisformajorpowerplantprojects.Forexample,aself-containedengineer-ingprojectteamincludingallengi-neeringdisciplines(mechanical,civil,electrical,etc.)willbeassignedtoeachnewpowerplantprojectratherthanpassingtheplansfromonefunctionaldepartmenttoan-otherandtryingtoassignproperpriorities.Someofthesameprocedureswillbecarriedoverintothedesignandengineeringforlargenewtransmis-sionlines,substationandrelatedresearchanddevelopmentprojects.Besidesbetterutilizingourhumanresources,weexpectthattheresult-ingstandardizationindesign,con-structionandoperationoftheseprojectswillhelpusattainsignifi-cantcostreductionswithoutsacri-ficingqualitycontrolorconstructionschedules.Theproblemsandchallengeswefacetodayareverydifferentfromthosewefacedonlyafewyearsago.Thisisonewaywearechangingtomeetthesechallenges.-Intheareaofunionrelations,thisspringwillmarktheendofthethree-yearlaborcontractbetweentheCompanyandthe5,000membersoftheEmployeesIndependentAsso-ciation(EIA)andthe330membersoftheScrantonlocaloftheInter-nationalBrotherhoodofElectricalWorkers(IBEW).NegotiationsforanewcontractwiththeEIAandtheIBEWareexpectedtogetunderwayshortly.ManagementChangesAnumberofexecutiveappointmentsweremadeduring1973.EdwardM.Nagel,generalcoun-selandsecretarywasappointedvicepresident,generalcounselandsecretary.CharlesJ.Green,director,Per-sonnel,wasappointedtosucceedJackHanckelasHarrisburgDivisionvicepresidentwhenHanckelretiredonMarch1,1974after43yearswiththeCompany.BrookeR.Hartman,vicepresi-dent,DivisionOperations,wasap-pointedexecutivevicepresident,OperationseffectiveMarch1,1974.HesucceededExecutiveVicePresi-dentAustinGavinwhoretiredonthatdateaftermorethan37yearswithPP&L.TheappointmentofanexecutivevicepresidentofOperationswillhelpinthemoreeffectivemanage-mentofday-to-dayoperatingprob-lemsthatareseparateanddistinctfromlong-rangecorporateplanning-anddecision-making. LeonL.Nonemaker,vicepresi-dent,Consumer&CommunityAffairs,wasnamedtosucceedHart-manasvicepresident,DivisionOp-erations.JohnT.Kauffman,assistantvicepresident,SystemPower&Engi-neering,wasappointedvicepresi-dent,SystemPower&EngineeringtosucceedGavinwhoheadedSP&Einadditiontohisdutiesasexecutivevicepresident.BothNonernakerandKauffmanreporttoHartman.HerbertD.NashJr.,manager,Consumer&CommunityServices,wasnamedvicepresident,Con-sumer&CommunityServices,suc-ceedingNonemaker.Threenewvicepresidentialposi-tionshavebeencreated.Theap-pointments,whichwereeffectiveJan.1,1974,reflecttheincreasingdemandontheresourcesofvariouscorporatefunctionsandtheexpand-ingresponsibilitiesassociatedwithchallengesfacingtheCompany.NormanW.Curtis,manager,Engineering&Construction,wasnamedvicepresident,Engineering&ConstructionwithinSP&E.RichardH.Lichtenwalner,man-ager,CommunicationServices,wasnamedvicepresident,PublicRela-tionswithintheHumanResource&DevelopmentDepartment.EdwinH.Seidler,manager,Distribution,wasappointedvicepresident,Distribution,inDivisionOperations.Dr.EugeneS.Farjey,adirectorfrom1962to1972,diedonSept.17athishomenearBeaumont,Pa.Dr.FarjeyservedasthefirstpresidentofWilkesCollegeinWilkes-Barrefrom1947to1970whenheretiredfromthatpost.Hewasalsochancel-lorofthecollegefrom1970to1971.'j4~PP8L'sMontourPreserve,builtnearthenewMontourplanttoprovideanemergencyback-upwatersupply,isbecomingverypopularasafour-seasonfishing,recreationandecological-studyarea.TheCompanyhassponsoredseveralfishingclinicsforareayoungstersincooperationwiththePennsylvaniaFishCommission.IjtiLIt,$JI$r)Ir(rwInfncreasingnumberswomenareturningtophysical-laborjobstraditionallyhetdbymen.Thisyoungwomansoughtandwonapositionasalaboreronaconstructioncrewwhereshelearnedtouseapowerhacksaw.PP&Lhasbeenencouragingwomentobroadentheirinterestsandseekjobsthat,untilnow,havebeenregardedasinthemaledomain.TheCompanyfeelsthatifawomancandoajob,sheshouldhaveanequalopportunitytohaveit. THEFUELSITUATIONTheenergycrisisisnolongertheoretical.Inlastyear'sannualreportwediscussedthegrowing-signsthatwewereheadedfortrouble.Thisyearwehaveallbeenaskedtolowerourheatandcutbackonourlighting.Wecan'tbuygasolineonSundaysandtherestoftheweekwemayen-.counterlonglines,limitedpurchasesandhighprices.Fewofusaresoinsulatedfromtherealworldthatwehaven'tbeenaffectedinsomewaybytheshortageoffuel.Althoughwewouldprobablyallagreethatwedohaveaproblem,it'shardtofindaconsensusonjusthowbadthesituationreallyis.Theprob-lemiscompoundedbyalackofharddatafromwellestablishedsourcesonhowmuchoilisavail-able,whereit'scomingfrom,whereit'sstoredandwhereit'sgoing.OriginsoftheProblemAsasociety,wehelpedbringtheproblemuponourselvesbytryingtoattainsomeloftyandlauda-blegoals.OilimportscameaboutbecauseitwascheapertoproduceabarrelofoilintheMideastthanintheU.S.-theaimwastodosomethinggoodfortheconsumer,givehimalltheenergyhecoulduseatlowprices.Coaldeclinedasoneoftheprimaryfuelspartlybecauseminehealthandsafetylawsmadeitmoreexpensivetogetthecoaloutofthegroundandenvironmentalstandardsweresetthatpreventedmuchoftheavailablesupplyfrombeingburned.Againtheobjectivesweregood-saferworkingconditionsforminersandacleanerenvironmentforallofus.Anunderstandablegoalofmakingsurethepublicissafeandfreefrommanmaderadiationhazardscontinuestocontributetodelaysintheuseofnuclearpoweronawidespreadbasis."Societycravedmorecheapenergyontheonehandwhilelimitingsupplyontheother.Andsoourobjectivesarebeginningtoclash.Weareatthereceivingendofourconflictinggoals.NoLackofResourcesJustbecauseweareshortofenergysupplies,primarilypetroleumproducts,doesn'tmeanwelackenergyresources.TheU.S.GeologicalSurveyestimatesthattheU.S.alonehas:-Potentialoilreservesof450billionbarrels,or80timesourconsumptionin1971.-Potentialnaturalgasreservesof2,100trillioncubicfeet,equivalenttoalmost100timesour1971consumption.-Potentialcoalreservesofabout390billiontons,orabout800timeswhatweusedin1971.Fordecadeswehavebeenusingthecheapest,mostreadily-availablefuelsupplies.But,asthisenergysupplybecomesmorerestricted,theun-tappedpotentialbeginstolookmoreattractiveOilwellsonceconsideredmarginalbegintoshowaprofitaslowpetroleumpricesbegintorise.Moreexplorationtogetatless-readilyavailablesuppliesbeginstobeeconomicallyfeasible.TheCompanybelievesthat,forthelongrun,thebestapproachtohavingadequateenergysuppliesisafreeandopenmarket.Noonecanrepealthelawsofsupplyanddemand.Notallofthatenergypotentialwementionediscleanfuel~Weareeithergoingtohavetobemoretolerantaboutairpollutionstandardsorwearegoingtohavetofindwaystousedirtyfuelsinacleanerway...andthatwillcostevenmore.Butsocietywillhavetomakethechoice.PP&L'sSituationAfulldiscussionofalltheramificationsofthefuelcrisisandhowitaffectsallofuswouldtakemuchmorespacethanwehaveinthisreport.However,thereareafewpointsthatshouldbemadeaboutthesituationatPennsylvaniaPower&LightCompany:~About96percentofourelectricgenerationcamefromcoalin1973.~Ourcoalreservesaddupto120milliontonsthroughownershiporcontroloffivemines inwest-centralPennsylvaniaandthroughlong-termcontractsforopen-marketcoal.Weexpecttosubstantiallyincreasethesecoalre-servesin1974,soweareassuredofastablesupplyofcoalformanyyearstocome.~Althoughthecostofopenmarketcoalhasbeenincreasingsharplyinrecentmonths,PPBLisabletorecovertheseincreasedcoststhroughafueladjustmentsurchargewrittenintoourratestructureandapprovedbythePennsyl-vaniaPublicUtilityCommissionandtheFed-eralPowerCommissionin1970.~PP8L'sseventhunitcoaltrainisexpectedontherailsatmid-year.Eachofthetrainsinthefleethasbetween105and131cars,andcarriesmorethan10,000tonsofcoaleachtripfromminetopowerplant.~ThePennCentralRailroad,whichlastyearwasonthevergeofliquidation,hasbeenincludedinasweepingoverhaulofthefalteringrailnet-workservingmostoftheNortheastandpartsoftheMidwest.SincepracticallyallofourcoalcomestousoverPennCentraltracks,thepos-sibilitythatthelinewouldgooutofbusinessdidcauseusagreatdealofconcernlastfall.Legislationpumpingnearly$560millionintothereorganizationofsevenbankruptrailroads,includingPennCentral,givesussomeassur-anceofcontinuedservice.~ByvirtueofPP8L'shighpercentageofcoal-firedcapacity,andadequatereserves,theCom-panyin1973wasabletoprovidesevenbillionkilowatthoursofelectricitytocompanieswhicharemoredependentonoil,mostlyinthePenn-sylvania-NewJersey-Maryland(PJM)powerpool.Thiscoal-generatedpowerisestimatedtohavesavedabout300milliongallonsofoil.WhyOilatMartin'sCreek?Withoilbecomingscarce,PP8L'sdecisionsovertheyearstodependheavilyoncoalbegintolookbetterandbetter.Why,then,isPP&Lbuildingtwonew800,000-kilowattunitsatMartinsCreekwhichwillburnoil?That'sanaturalques-tionandonewe'ebeenhearingquiteabitlately.Anexplanationisinorder.Ittakeseighttotenyearstodesignandbuildafossil-fuelgeneratingplant.Longbeforecon-structionbeginsitmustbedecidedwhattypeoffuelwillbeburned..Whenthedecisionwasmadein1969tofuelthetwoMartinsCreekunitswithoilratherthancoal,thefollowingconditionsprevailed:~Anincreasedemphasisonenvironmentalpro-tectionmeantburninglow-sulfurfuelsorin-stallingequipmentthatwouldremovesulfurgasesandparticulate.~Thereliabilityofsulfur-dioxideremovaltech-nologyforcoal-buiningunitswasn'tproventhenandstillisn'tproven.~Studiesbyconsultingfirmsindicatedthatthepriceoflow-sulfurcoalwouldrisefasterthanoil.Thestudiesalsoindicatedadequatesup-pliesoflow-sulfurcoalforaplantthissizeweren'tavailableeastoftheRockyMountains.~Atthesametime,theconsultants'tudiescon-cludedthatplentyoflow-sulfuroilwouldbeavailableandwouldresultinmuchlessenvi-ronmentalimpactfromthestandpoint.ofbothsulfurandash.IsConversiontheAnswer?Nowwithoilinshortsupply,PP8Lisbeingaskedwhywedon'tchangeourplansinmid-streamandconverttocoal.Theanswerissimple.Wearepastthepointofno-return.Itisneitherpracticalnorfeasibleatthistimetoconverttocoal.Toundertakeacon-versionatthispointwouldbringtheprojecttoahaltandmeanthatnoenergywhatsoeverwouldbeavailablefromtheseunitsforaperiodoffiveorsixyears.Clearly,thatisnotacceptable.ThenewMartinsCreekunitswillburneithercrudeorresidualoil.Whenadequatesuppliesofcrudeoilareavailabletheunitscanburnthatfuel withoutgoingthroughtheintermediatestepofpassingitthrougharefinery.Thisisparticularlyhelpfulduringperiodsoftightrefinerycapacity,suchasthecountryisnowexperiencing.Residualoiliswhatremainsafterrefinerieshaveextractedthegasolineandotherdistillatessuchasdieselfuelandhomeheatingoilfromtherawcrude.Residualfuelhassuchahighvis-cositythatitbecomessolidatroomtemperatureandmustbeheatedtomakeitliquid.Itcannotbeusedforhomeheatingpurposesorconven-tionalcommercialapplications.Themainuseristheutilityindustry.AmajoreconomicandconservationbenefitoftheMartinsCreekunitsisthattheycanbeusedinlieuofgenerationbycombustionturbineswhichburnonlyNo.2(homeheating)oilandhaveanefficiencyratesignificantlylowerthanthebigoilunits.Thenewunitsarespeciallydesignedtobeusedforpeakingpurposes,withthecapacitytopickuploadordropitquicklytomeetfluctuatingde-mand.Theycanbeshutdownovernightoroveraweekendandbestartedupquickly.TheMartinsCreekunitsprovideauniquecombinationofeffi-ciencyandflexibilityofgeneratingcharacteristicsnotfoundincoal-firedunits.Sincepowerloadsriseandfallsharplyduringatwenty-fourhourperiod,adequateelectricservicerequirestheuseofequipmentsuitedforpeakingoperation.OilSupplyObviouslyundertoday'sconditionsthereisun-certaintyovertheoilsupplysituation.EventhoughwedohavecommitmentsforalloftheoilforUnitNo.3and40percentforUnitNo.4,thesupplycouldbeaffectedbyconditionsintheMiddleEastandbygovernmentallocationprograms.Besidesasourceofoil,weneedawaytogetitfromtheterminalatMarcusHook,Pa.toMar-tinsCreek.An82-mileInterstateEnergyCo.pipe-lineistheplanneddeliverysystemfortheoil.Eventhoughextensiveengineeringandright-of-wayacquisitionhavealreadybeencompleted,constructionofthepipelinehadnotbegunattheendofFebruarybecauseofseveralpendingdecisionsbyregulatoryagenciesandthecourts.Evennow,though,itistoolatetohavethepipelineinoperationintimeforstart-upofUnitNo.3inthefallofthisyear.Assoonasthissitua-tionbecameclear,PPP&Lbeganmakingprovi-sionsforalternateemergencyrailunloadingfacilitiesatMartinsCreekandterminalfacilitiesthereandatMarcusHooksowewouldhaveanassuredoildeliverysystemwhentheplantiscompleted.Alloftheseproblemsjustemphasizethecom-plexityoflookingintothefutureandmakingsoundbusinessdecisionsfortheyearsaheadbasedonconditionsastheyaretodayandaswethinktheywillbetomorrow.Long-RangePlansLookingbeyondthenewMartinsCreekunitsweseeourSusquehannanuclearunitscomingonthelinein1979and1981.Beyondthat,wehavefirmplansforapumpedstoragehydroelectricfacilityandtentativeplansforthreelargenewcoalunitsforthemid1980s.Thiswillgiveusagoodmixoffuelsforthefuture.Wewon'thaveallofourgeneratingeggsinoneenergybasket.However,fortheshortterm,wecannotburnbrightlywhileotherssitindarkness.Eventhoughweareheavilydependentoncoalandfeelwehaveadequateassuredsuppliesforourneeds,PP8Lisjustapartofthelargerregionalandna-tionalenergysupplypicture.Atthistimethereisjustnowayofknowingtowhatextentwewillberequiredtouseourenergyresourcesinaidingothersshouldthatbecomenecessary.Inspiteoftheuncertaintiesthatexistwehavenodoubtthatthiscountrycansolvetheproblemsthatconfrontit.But,itwilltaketimeandmoney,andalotofcooperationandunderstanding. PENNSYLVANIAN.Y.PA.SCRANTN~ALIKES.BARREyLWalleaupackPlantILLIAMSPORT~Susquehann~Plant~+ontourPlantADANVILLE~BERWICK~HAZLETONSuburyPlant~~SUNBURYMartinsCreekPlant*'OTTSVILLE~~e&HLEHEuALLENTOWNNewYr~ARISBURG~BrnfterIslandPlan~LANCASTERSafeHarborPlant~HoltwoodPlantAPhiladelphiaMD.N.J.~BaltimoPP&Lsupplieselectricserviceloapopulationof2,309,000peopleina10,000squaremileareain29countiesofcentraleasternPennsylvania.'nderConstruction"UnitsNo.3and4underconstruction13 STATISTICALSUMMARY19731972197119701969CAPITALINVESTMENT-thousandsLong-termdebt................Preferredandpreferencestock-..Commonequity...............Short-termdebt........Totalcapitalinvestment.RETURNONCAPITALINVESTMENT-asapercentageofaverage"capitalinvestment.............NUMBEROFSHAREOWNERS-preferred,preferenceandcommon$753,027271,375469,608635,044231,375412,130f576,760~514,371196,375156,375351,299303,1171,494,01039,8511,278,54996,4821,124,43476,251973,86397,8787.837.567.346.83142,235135,399123,598111,909$1,533,8611,375,0311,200,6851,071,741474,18286,375268,233828,79098,500'27,2907.1398,450OPERATIONSELECTRICCUSTOMERS.....ENERGYSALES-millionsofkilowatthoursResidentialCommercialIndustrialOther6,3244,2626,8811,3985,9853,9336,4586375,4793,5336,0536205,0933,1985,8075854,5732,8405,566552886,378864,439843,080828,643818,500AVERAGEPRICEPERKWHtoultimatecustomers-cents....SOURCESOFENERGYSOLD-millionsofkilowatthoursGeneratingunitsCoal-firedOil-firedHydroelectric................Purchasedpower..............~InterchangedpowerPurchases.Sales.Companyusesandlosses.......Totalenergysales.............FUELCOST-millsperkilowatthourPOWERCAPABILITY-kilowatts...PEAKDEMAND-kilowatts(a).....EMPLOYEES18,8652.06'24,7822738163841,584(7,237)(1,737)18,8655.04,903,0003,662,0007,13917,0132.0219,097'018244181,366(3,586)(1,707)17,0134.94,108,0003,598,0006,79015,6851.9015,8476426843041,467.(1,758)(1,501)15,6854.83,496,0003,294,0006,51414,6831.7113,7027867393391732(1,164)(1,451)14,6834.23,256,0003,238,000,6,37213,5311.6213,5144376212531,709(1,559)(1,444)13,5313.23,124,0002,850,0006,238(a)WinterpeakshownwasreachedearlyInsubsequentyear.In1969and1970,peaksarethosewhichwouldhaveoccurredIlloadcurtailmentmeasureshadnotboonInotfoct.AmoredetailedreviewottheCompany'soperationslsavailable.Apostalcardlsprovidedwiththisreporttoaldyouinmakingthisrequest.14 STATEMENTOFINCOME19731972197119701969OPERATINGREVENUES(Note3)(99%electric).................OPERATINGEXPENSES(Notes4and11)Wagesandemployeebenefits...FuelPowerpurchases..............Interchangepowersales........Otheroperatingcosts..........DepreciationIncometaxes(Note9)CurrentDeferred.InvestmenttaxcreditsDeferredAmortizationofdeferments-creditTaxes,otherthanincome.......57,421125,57715,299(70,175)45,23448,83755,22095,22013,514(34,569)3951241,44648,19879,49918,963(15,468)33,21434,90345,77961,62121,982(9,356)24,0093217341,94644,60117,453(8,865)21,86528,98122,6615,7377233(1,688)30,00518,1022,8297,349(2,194)25,65812,672(244)1,597(2,480)22,1464,986(795)1,573(2,539)18,19714,400(795)3,339(2,540)8,167ThousandsofDollars3384,814345,782300,707255,313223,388OPERATINGINCOME............OTHERINCOMEANDDEDUCTIONSAllowanceforfundsusedduringconstruction..........Other-netINCOMEBEFOREINTERESTCHARGESINTERESTCHARGESLong-termdebt............Short-termdebt...........Other286,14198,67314,9671,39116,358115,03143,2034,790126262,08783,70514,6472914,67698,38136,507',846107233,00067,70716,24211316,35584,06230,8954,109486197,63057,6839,7231929,91567,59825,3817,19488168,55254,8366,3691976,56661,40220,8135,93545NETINCOME.Dividendsonpreferredandpreferencestock........EARNINGSAPPLICABLETOCOMMONSTOCK.........48,11966,91217,191$49,72140,46057,92114,52643,39548,57211,39237,18034,9356,42628,50935,49032,66326,79334,6093,82230,787COMMONSTOCKAveragenumberofsharesoutstanding...............Earningspershare,basedonaveragenumberofsharesoutstanding...............Dividendspershare..........$2.57$1.682.481.642.371.601.971.602.321.6019,358,94717,512,79315,690,49014,472,07613,277,365SeeaccompanyingNotestoFinanctalStatements. BALANCESHEETASSETSUTILITYPLANT'lantinservice-atoriginalcostElectricSteamheat.$1,619,3277,7281,386,2238,110December3119731972ThousandsofDollarsLessaccumulateddepreciationConstructionworkinprogress-atcost1,627,055312,1781,314,877219,2771,534,1541,394,333275,6271,118,706242,7071,361,413INVESTMENTSSubsidiaries-atequity(Note2)SafeHarborWaterPowerCorporation-atequity(Note2)..Nonutilityproperty-atcost,lessaccumulateddepreciation.Other-atcostorless.5,3203,5962,7497,35419,0193,1293,3152,5525,54014,536CURRENTASSETSCash(Note5).Constructionfundforpollutioncontrolfacilities(Note6)..Accountsreceivable,lessreserveCustomersOtherMaterialsandsupplies-ataveragecostFuelOperatingandconstruction.Other..............................14,9039,07322,65610,92926,88417,0065,598107,04913,72923,5103,33031,60112,8479,48894,505DEFERREDDEBITS...6,624$1,666,8464,6501,475,10416SeeaccompanyingNotestoFinancialStatements. LIABILITIESDecember3119731972ThousandsofDollarsCAPITALIZATION*ShareownersinvestmentPreferredstockPreferencestockCommonstockCapitalstockexpense(deduction)(Noamortizationplaninellect)Earningsreinvested(Notes7and8)Long-TermDebt156,375115,000319,384(6,889)157,113740,983753,0271,494,010116,375115,000278,484(6,592)140,238643,505635,0441,278,549CURRENTLIABILITIESBankloans(Note5).Commercialpapernotes(Note5).AccountspayableTaxesaccruedDividendspayableandinterestaccruedOther39,85133,70513,45728,1397,029122,18130,00066,48227,1939,96323,0036,471163,112DEFERREDANDOTHERCREDITSAccumulateddeferredinvestmenttaxcredits.AccumulateddeferredincometaxesContributionsinaidofconstruction.Other15,32317,4369,7048,19250,655$1,666,8469,77912,0355,8595,77033,4431,475,104'SeoSchodutoofCapitalStockandLong-TermDebtonpago18.SeeaccompanyingNotestoFinancialStatements. SCHEDULEOFCAPITALSTOCKANDLONG-TERMDEBTDecember31,1973ThousandsofDollarsCAPITALSTOCK'PREFERREDSTOCK-$100par,cumulative4'/2/o,authorized629,936shares,outstanding530,189shares......$53,019Series,authorized2,000,000shares3.35/o,outstanding41,783shares.4,1784.40lo,outstanding228,773shares.22,8784.60%%d,outstanding63,000shares.6,300,7.40/o,outstanding400,000shares(a)40,0008.60/o,outstanding222,370shares22,2379/o,outstanding77,630shares...7,763$156,375PREFERENCESTOCK-nopar,cumulative,authorized5,000,000shares$8.00series,outstanding350,000shares...............$35,000$8.40series,outstanding400,000shares...............$8.70series,outstanding400,000shares...............40,000$115,000COMMONSTOCK-nopar,authorized30,000,000shares,outstanding21,051,255shares.................$319,384'a)OnJuly1,1979andannuallythoroaftoruntiltho7.40/oSoriosProforrodStockIsrotlrodInfull,16,000sharesof7.40'loSorlosmustborodoomodthroughthooperationof'asinkingfundatarodomptlonprlcoof9100porshareplusaccruodandunpaiddividendstothodataofsuchredemption.LONG-TERMDEBTFIRSTMORTGAGEBONDS3/oseriesdue197527/sloseriesdue1976................2s/4loseriesdue1977................3'/s%seriesdue1978................2s/4%%dseriesdue1980................3'/s'/oseriesdue1982................3t/a%%dseriesdue1983................3s/s'/oseriesdue1985...".:...........4s/s/oseriesdue1991................4s/a/oseriesdue1994................5s/a/oseriesdue1996................6s/4'/oseriesdue1997................7o/oseriesdue19998t/a%%dseriesdue1999................9/oseriesdue2000.7t/4/oseriesdue2001................7s/s/oseriesdue2002................7t/2/oseriesdue2003................4t/2/oto56/s'/opollutioncontrolseriesAdueannually$500,1977-1983;$900,1984-2002;$7,400,2003........NOTES6t/410-8t/4%%ddue1974-toberefinanced6t/a'/o-7'/odue1976.7/0due1980OTHER$93,0008,00020,0003,00037,0007,50025,00025,00030,00030,00030,00030,00040,00040,00050,00060,00075,00080,00028,000711,50018,5502,80020,00041,350177$753,027SECURITIESSOLDIN1972AND19731972FebruaryFebruary-MarchJulyOctoberSecurityFirstMortgageBonds,7%loSeriesdue2002Notes,6t/4lo-6t/a/oduein1974and1976.PreferenceStock,$8.00Series..........CommonStockShares350,0002,000,000Amount$75,0008,30035,00046,940$165,2401973JanuaryMayJulyAugustNovemberFirstMortgageBonds,7t/2/oSeriesdue2003..FirstMortgageBonds,4t/2/oto5s/s/oPollutionControlSeriesAdue1977-2003...........Note,7%%ddue1980.SeriesPreferredStock,7.40/o.CommonStock.400,0002,000,000$80,00028,00020,00040,00040,900$208,900SooaccompanyingNotostoFinancialStetomonts.18 SOURCESOFFUNDSUSEDFORNEWCONSTRUCTION1973197219711970ThousandsofDollars1969OPERATIONSNetincomeNon-cashcharges(credits)toincomeDepreciationAllowanceforfundsusedduringconstruction.Deferredextraordinarypowercosts.........Deferredincometaxesandinvestmenttaxcredits-net.Lesscashdividends48,837(14,967)22041,446(14,647)22034,903(16,242)22011,282112,28450,03762,2477,98492,92443,33049,594(1,127)66,32636,74629,580$66,91257,92148,57234,93532173(9,723)(2,105)(1,762)53,51829,45624,06234,609r28,981(6,369)357,22425,09732,127OUTSIDEFINANCINGSecuritiessoldCommonstock.PreferredstockPreferencestockFirstmortgagebondsLong-termnotesOtherlong-termdebt"SecuritiesretiredFirstmortgagebondsLong-termnotesOtherlong-termdebtShort-termdebt-netincrease(decrease).40,90040,000108,00020,0002446,94037,12035,00075,000"8,3004240,00060,00010,4505628,09324,05030,00040,00050,000'0,0002,60087(15,000)(7,763)(10,000)(8,000)(1,000)(3,500)(57)(117)(236)'140)20,231(21,627)(4,122)8,050142,252160,456117,882137,659108,514OTHERSOURCESAND(USES)InvestmentsRefundofprioryearsFederalincometaxes-netWorkingcapital-netchange(excludingshort-termdebt)Miscellaneous-net.(4,483)24(253)3,156(a)(6,624)(a)23,8966,3576575,0525,030(5,943)28,695',5301,4722,956(14,824)(13,652)1,036203(6,302)(11,977)TOTALFUNDSUSEDFORNEWCONSTRUCTION(b)$209,529204,107176,157155,419128,664(a)ThonetchangesInworkingcapitalresultedprincipallyfromthefollowing:1973,IncreasesInothoraccountsreceivable,construc-ttonfund,accountspayabloanddividendspayableandaccruedInterest;1972,IncroasosInaccountsreceivableandfuelinventory.(b)Excludesallowancoforfundsusedduringconstruction.\SeeaccompanyingNotestoFlnanclatStatomonts.19 STATEMENTOFEARNINGSREINVESTEDBALANCE,JANUARY1NETINCOME197219711970ThousandsofDollars$140,238125,647113,821108,34266,91257,92148,57234,935207,150183,568162,393143,277196998,83034,609133,439DIVIDENDSPreferredandpreferencestockCommonstock(pershare-1973,$1.68;1972,$1.64;1971-1969,$1.60).........BALANCE,DECEMBER31(Notes7and8).........17,19114,52611,3926,4263,822'2,84650,03728,80443,33025,35423,03021,27536,74629,45625,097$157,113140,238125,647.113,821108,342NOTESTOFINANCIALSTATEMENTSDecember31,1973and19721.SUMMARYOFACCOUNTINGPOLICIESAccountingSystemAccountingrecordsaremaintainedinconform-itywiththeuniformsystemofaccountspre-scribedbytheFederalPowerCommission(FPC)andadoptedbythePennsylvaniaPublicUtilityCommission(PUC)~UtilityPlantCostsofadditionstoutilityplantandreplace-mentsofunitsofpropertyarecapitalized.Costsofdepreciablepropertyretiredorreplacedareeliminatedfromutilityplantaccountsandsuchcosts,plusremovalcosts,lesssalvage,arechargedtoaccumulateddepreciation.Costsoflandretiredorsoldareeliminatedfromutilityplantaccountsandanygainsorlossesarere-flectedontheStatementofIncomeduringthecurrentyear.Allexpendituresformaintenanceandrepairsofpropertyandthecostofreplace-mentofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.AllowanceforFundsusedDuringConstructionAsprovidedintheuniformsystemofaccounts,thecostoffunds(interestonborrowedmoneyandareasonablerateonothercapital)usedto.financeconstructionworkinprogressiscapital-izedasUtilityPlant.'AnamountequaltotheamountsocapitalizedisshownontheStatementofIncomeasanitemofOtherIncomeandservestooffsettheactualcostoffinancingconstruc-tionworkinprogress."DepreciationForfinancialstatementpurposes,thestraight-linemethodofdepreciationisusedtoaccumu-lateanamountequaltothecostofutilityplantandremovalcosts,lesssalvage,overtheesti-matedusefullivesofproperty.SubsidiariesPriorto1973,theCompanycarrieditsinvest-mentsinsubsidiariesandinSafeHarborWaterPowerCorporationatcost,anddidnotrecorditsequityintheearningsofthesecompaniesexcepttotheextentreceivedasdividends.In1973,pur-suanttoarevisionoftheuniformsystemofac-counts,theCompanyadoptedtheequitymethodofaccountingfortheseinvestments.Underthismethod,theCompanycarriestheseinvestmentsonitsBalanceSheetatcostplusundistributedearningssincedatesofacquisition,andreflectsitsequityintheearningsofthesecompaniesinOtherIncomeontheStatementofIncome.RevenuesRevenuesarebasedoncyclebillingsrenderedtocertaincustomersmonthlyandothers20 bi-monthly.TheCompanydoesnotaccruereve-nuesrelatedtoenergydeliveredbutnotbilled.TheCompany'stariffsincludefueladjustmentclausesunderwhichfuelcostsaboveorbelowthelevelsallowedinapprovedrateschedulesarepermittedtobebilledorcreditedtocustom-ersafterthefuelcostsareincurred.IncomeTaxesDeferredtaxaccountingisfollowedforitemswheresimilartreatmentinratedeterminationshasbeenorisexpectedtobepermittedbythePUC.Theprincipalitemsareacceleratedamor-tizationofcertifieddefensefacilitiesandpollu-tioncontrolequipment,deductionofcostsofremovingretireddepreciablepropertyandthatportionoftaxdepreciationarisingfromshorten-ingdepreciablelivesby20/0aspermittedbytheclasslifedepreciationsystem.Taxreductions"arisingprincipallyfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddifferentlyfortaxcomputationthanforbookpurposesareaccountedforundertheflow-throughmethod.Thesereductionsinincometaxprovisionsarealsoaccordedflow-throughtreatmentinratedeterminationsbythePUCandcurrentlyresultinlowerratesforcustomersthanwouldotherwisebepossible.Investmenttaxcreditsaredeferred.DeferredamountspertainingtotheJobDevelopmentIn-vestmentCredit(RevenueActof1971)arebeingamortizedovertheaveragelivesoftherelatedpropertywhileamountspertainingtothecreditspermittedunderpriorlawsarebeingamortizedover5-yearperiods.RetirementPlanTheCompanyhasaRetirementPlancomposedoftwoparts:(1)anon-contributoryportionwhichprovidesbenefitsforalleligibleactiveemployeeswiththefullcostabsorbedbytheCompany,and(2)avoluntaryportioninwhichcontributionsaremadebybothemployeesandtheCompany,butthefullcostofpastserviceandPlanimprove-mentsisbornebytheCompany.Approximately95'/oofeligibleactiveemployeesaremembersofthevoluntaryportionofthePlan.CompanycontributionstothePlanincludeamountsre-quiredtofundcurrentservicecostsandtoamor-tizeunfundedpastservicecostsoverperiodsofnotmorethan20years,ResearchandDevelopmentResearchanddevelopmentcostsarechargedtoexpense.asincurredexceptforcostsrelatedtospecificconstructionprojectswhicharecapi-talized.2.SUBSIDIARIES,CONTROLLEDCOMPANIESANDSAFEHARBORTheCompanyhassixwholly-ownedsubsidiaries(includingthreecoalcompanies)andhascontrolovertheoperationsofoneothercoalcompany.Noneofthesecompaniesisengagedinthebusi-nessofgeneratinganddistributingelectricity.ThetotalcombinedassetsofthesecompaniesatDecember31,1973andDecember31,1972waslessthan5/ooftheCompany'sassetsandthetotalcombinedrevenueofthesecompaniesineachoftheyears1973and1972(afterinter-companyeliminations)waslessthan1/ooftheCompany'srevenues.TheCompanyalsoownsone-thirdoftheoutstandingcapitalstockofSafeHarborWaterPowerCorporationrepresentingone-halfofthatcompany'svotingsecurities.Asaresultoftheadoptionoftheequitymethodofaccounting,theCompanyrecordedasOtherIncomeduring1973approximately$812,000(ofwhich$250,000wasreceivedasdividends)asequityintheearningsofsubsidiarycompaniesandSafeHarborWaterPowerCorporation.Oftheamountrecorded,approximately$500,000wasapplicabletoundistributedearningsofthesecompaniesfromtheirrespectivedatesofacquisi-tiontoDecember31,1972.3.RATEINCREASESPursuanttoarateincreaserequestfiledin1973,thePUCgrantedtheCompany,effectiveJune2,1973,a2.7'/oincreaseinelectricrates(about$10millionannually).Operatingrevenuesfortheyear1973include$4.8millionresultingfromthisin-crease.ThefinalPUCorderontherequestau-thorizedtheCompanytoincreaseelectricratesbyanadditional5.7/o(about$19millionannu-ally)effectiveJanuary10,1974.4.STORMDAMAGEDuringJune1972severefloodingcausedbyTropicalStormAgnesoccurredintheCom-pany'sservicearea.Effectsofthefloodincreasedoperatingexpensesbyapproximately$1.6mil-lion(10centspershare)aftergivingeffecttoinsurancerecoveries,casualtyreservesandre-latedtaxreductions.21 5.COMPENSATINGBALANCESANDSHORT-TERMDEBTTheCompanyhaslinesofcreditaggregating$145millionwithvariousbankswhichmakeavailableloansforinterimfinancingandprovideback-upfinancingcapabilityforcommercialpapernotes.AtDecember31,1973,useoftheselinesofcreditwasrestrictedtotheextentof$11.5millionbyshort-termbankloanstocertainownedandcontrolledfuelsupplycompanies.Inconnec-tionwiththeselinesofcredittheCompanymain-tainscompensatingbalanceswhich,generally,areonthebasisof10/oofthelineofcreditor20/ooftheamountborrowed,whicheverishigher,onanaverageannualbasis.Thesebal-ancesarenotrestrictedastowithdrawal.Basedonbankborrowingsduring1973,theaveragecompensatingbalancerequirementwasabout$13.8million,ofwhichabout$2.0millionwassatisfiedby"float"(checksissuedbutnotclearedbythebanks).Bankborrowingsaregenerallyforoneyear,maybeprepaidatanytimewithoutpenaltyandareatthelendingbank'sprimeinterestrateineffectfromtimetotime,whichwas9~/4/oatDecember31,1973.TheCompanyhadnobankloansout-standingatDecember31,1973.Commercialpapernotesaregenerallysoldforperiodsrang-ingfrom30to60days;theweightedaveragediscountrateapplicabletothe$39.9millionofcommercialpapernotesoutstandingatDecem-ber31,1973was8.5/o.Themaximumaggregateamountofshort-termdebtoutstandingattheendofanymonthin1973was$85.2million;theaverageaggregatedailyamountoutstandingduring1973was$60.6mil-lion.Theapproximateweightedaverageinterestrateofshort-termdebtduring1973was7.9/o,calculatedbydividingthetotalshort-termdebt-interestexpensefortheyearbytheaverageaggregatedailyamountofshort-termdebtout-standing.6.POLLUTIONCONTROLCONSTRUCTIONFUNDTheunexpendedproceedsfromthesaleofFirstMortgageBonds,PollutionControlSeriesA,amountingto$13.0millionatDecember31,1973,areheldbyatrusteeinaConstructionFundwhichconsistsofcashandtemporarycashin-vestments.PaymentsmaybemadefromtheFunduponrequisitionbytheCompanyforcostsre-latedtotheconstructionofcertainpollutioncon-trolfacilities.Theamountexpectedtoberequisi-tionedfromtheFundin1974isclassifiedasaCurrentAssetwhilethebalanceisincludedaspartofOtherInvestments.7.DIVIDENDRESTRICTIONSTheCompany'scharterandmortgageindenturesrestrictthepaymentofcashdividendsonCom-monStockundercertainconditions.Underthecharterprovisions,whicharethemorelimiting,norestrictionsareeffectiveonthepaymentofsuchdividendsoutofcurrentearnings.TheamountofearningsreinvestedfreeofrestrictionsunderthecharteratDecember31,1973was$135.1million.8.PROPERTIESSUBJECTTOFEDERALLICENSESTheCompanyoperatestwohydroelectricproj-ectsunderlicensesissuedbytheFPC.CertainreservesrequiredtobeprovidedundertheFed-eralPowerActhavenotbeenrecordedpendingapprovaloftheamountsbytheFPC.TheCom-panyestimatesthatsuchreservesapplicabletotheyearsfrom1946wouldnotexceed$2.5mil-lionatDecember31,1973.9.INCOMETAXESIncometaxexpensefortheyears1973and1972isreflectedontheIncomeStatementasfollows:19731972(ThousandsofDollars)UtilityOperations:Federalincometax...Stateincometax.....Deferredincometax..OtherIncomeandDeductions$16,4546,2075,73728,398(91)$28,30712,5825,5202,82920,931(334)20,597Portionoftaxdepreciation,.arisingfromshorteningdepreciablelivesby20/oundertheclasslifedepreciationsystem......Costsofremovingretireddepreciableproperty.....Acceleratedamortizationofpollutioncontrolfacilities..Abnormallossonretirementofproperty..............Acceleratedamortizationofemergencyfacilities......$3,0572,219385871(795)$5,7371,5501,8?8196(795)2,829Deferredincometaxesresultfromdifferencesbetweenthetimethefollowingitemsarerecog-nizedasexpensesfortaxandfinancialstatementpurposes:19731972(ThousandsofDollars)22 1973'972(ThousandsofDollars)IndicatedincometaxexpenseatcombinedFederalandStatetaxrates..........Reductionsinindicatedtaxdueto:Investmenttaxcredits....Allowanceforfundsusedduringconstruction-nontaxableTaxdepreciation(excludingportionduetoshorteningdepreclabIelivesby20loundertheclasslifesystem)inexcessofbookdepreciation.....Taxandpensioncosts-taxdeductioninexcessofbookexpense.......OtherTotalreductioninindicatedincometax...ActualincomeIaxexpense..$54,13172338,0417,5312,68733225,824$28,30745;1667,3497,9066,1452,55461524,56920,59710.RETIREMENTPLANObligationsoftheCompany'sRetirementPlanarecurrentlyfundedthroughaTrustFund.AtJune30,1973,theendoftheFund'smostrecentfiscalyear,theFund'sassetsatcostwere$80.0million;theactuariallycomputedunfundedpastservicecostwas$13.6million;andvestedbene-fitsexceededthecostbasisoftheFund'sassetsby$7.3million.Pensioncostsfortheyears1973and1972were$6.8millionand$6.7million,re-spectively,includingineachyearfundingofthepastservicecost.11.RENTALSANDNONCANCELABLELEASECOMMITMENTSTotalrentalschargedtooperatingexpensefor1973and1972amountedto$7.5and$6.3million,respectively.ThecombinedcurrentFederalandStatecorpo-rateincometaxratesequalabout54/ofortheCompany,afterconsideringthedeductibilityoftheStateincometaxexpense.However,theef-fectiveincometaxrate(incometaxexpenseasapercentageofnetincomebeforeincometaxexpenseandnetdeferral'ofinvestmenttaxcredits)was28'/oin1973and25/oin1972.Thereasonsforthelowereffectivetaxratesareshowninthefollowingsummary:tAtDecember31,1973theCompanywascom-mittedundernoncancelableleasesexpiringatvariousdatesto1996.Theminimumrentalcom-mitmentsundertheseleasesforfutureyearsareasfollows(millionsofdollars):1974,$3.7;1975,$3.8;1976,$3.7;1977,$3.5;1978,$3.3;1979through1983,$12.5;1984through1988,$7.0;1989through1993,$5.6;after1993,$2.0.Mini-mumrentalcommitmentsforfutureyearstotal$45.1million,applicabletothefollowingcate-goriesofproperties:combustionturbinegenerat-ingequipment,$19.2million;railroadcoalcars,$11.8million;computerequipment,$14.1million.GenerallytheleasescontainrenewaloptionsandobligatetheCompanytopaymaintenance,insur-anceandotherrelatedcosts.Theimpactuponnetincomeineachoftheyears1973and1972wouldbelessthan1'/oifallnon-capitalizedfinancingleaseswerecapitalizedandamortizedonastraight-linebasiswithinterestaccruedonthebasisoftheoutstandingleaseliability.12.COMMITMENTSANDCONTINGENTLIABILITIESTheCompanyestimatesthatabout$1.8billionwillberequiredtocompleteconstructionproj-ectsinprogressorauthorizedtobestartedin1974.Ofthisamount,about$305millionisap-plicabletotheyear1974withthebalancetobeexpendedthroughtheyear1981.TheCompanyissubjecttocertainpresentanddevelopinglawsandregulationswithrespecttoairandwaterquality,landuseandotherenvi-ronmentalmatters.TheCompanyisunabletopredicttheultimateeffectofsuchlawsandregu-lationsuponitsexistingandproposedfacilitiesandoperations.ItispossiblethatsuchlawsandregulationsmayrequiretheCompanytomodify,supplement,replaceorceaseoperatingcertainofitsequipmentandfacilities,delayorimpedeconstructionandoperationofnewfacilities,andrequiresubstantialadditionalexpendituresinamountswhicharenotnowdeterminable.Inconnectionwithprovidingforitsfuturebitu-minouscoalsupply,theCompanyhasPUCap-provaltoguaranteethecapitalobligationsofcertaincoalsuppliers(includingfourownedorcontrolledcoalcompanies)uptoapproximately$100millionoutstandingatanyonetime.Obliga-tionsactuallyguaranteedunderthesearrange-mentsaggregated$91.0millionatDecember31,1973.23 PRINCIPALOFFICERSDBOARDOFDIRECTORSJACKK.BUSBY,PresidentAUSTINGAVIN,ExecutiveVicoProsidentJOHNT.KAUFFMAN,AssistantVicePresident,SystemPower8EngineeringNORMANW.CURTIS,VicePresident,Engineering&ConstructionROBERTR.FORTUNE,VicePresident,FinancialGEORGEF.VANDERSLICE,ComptrollerCHESTERR.COLLYER,TreasurerDONALDJ.TREGO,AssistantTreasurerBROOKER.HARTMAN,VicePresident,DivisionOperationsLEONL.NONEMAKER,AssistantVicoPresident,DivisionOperationsCHARLESE.FUQUA,VicePresident,SusquehannaDivisionJACKHANCKEL,VicePresident,HarrisburgDivisionCARLR.MAIO,VicePresident,LehighDivisionJAMESJ.McBREARTY,VicePresident,NortheastDivisionHERBERTD.NASHJR.,VicePresidonl,ConsumerandCommunityServicesEDWINH.SEIDLER,VicoPresident,DistributionBRENTS.SHUNK,VicePresident,LancasterDivisionEMMETM.MOLLOY,VicePresident,HumanResourceandDevelopmentRICHARDH.LICHTENWALNER,VicePresidenl,PublicRelationsEbWARDM.NAGEL,VicoPresident,GeneralCounselandSecretary'AsofJan.1,1974CLIFFORDL.ALEXANDERJR.,Washington,D.C.PartnerofArnold&Porter,CounsellorsatLawJACKK.BUSBY,AllentownPresidentoftheCompanyRALPHR.CRANMER,WilliamsportPresidentandGeneralManagerofGritPublishingCompanyEDGARL.DESSEN,HazletonPhysician-RadiologistAUSTINGAVIN,AllentownExecutiveVicePresidentoltheCompanyW.DEMINGLEWIS,BethlehemPresidentolLehighUniversityJOHNA.NOBLE,ScrantonPresidentolClelandSimpsonCompanyNORMANROBERTSON,PittsburghSeniorVicePresidentandChiefEconomistofMellonBank,,N.A.JOSEPHT.SIMPSON,HarrisburgChairmanoftheBoardolHarscoCorporationM.J.WARNOCK,LancasterChairmanoltheBoardolArmstrongCorkCompanyCHARLESH.WATTSII,LewisburgPresidentofBucknellUniversityS.HAYWARDWILLS,Miami,FloridaChairmanoltheBoardandPresidentolGACCorporationExecutiveCommittee:JackK.Bushy,chairman:Messrs.Gavin,Simpson.WarnockandWills.AuditComminee:CharlesH.WattsII,chairman:Messrs.AlexanderandWarnock.SECURITIESLISTEDONEXCHANGESFISCALAGENTSNEWYORKSTOCKEXCHANGEFirstMortgageBonds,3%Soricsduc18754rh%ProlcrrcdStock(Codo:PPLPRB)4.40%ScriosPrclorrcdStock(Coda:PPLPRA)8.60%SeriesPrclorrcdSlack(Codo:PPLPRG)ProlcrcncoStock,$8.00Sorics(Codo:PPLPRJ)PrclcrcncoStock,$8.40Sorlcs(Codo:PPLPRH)PrclcrcncoStock,$8.70Scrios(Coda:PPLPRI)CommonStock(Coda:PPL)PBWSTOCKEXCHANGE4ye%PreferredStock3.35%SeriesPreferredSlock4.40%SeriesPreferredStock4.60%SeriesPreferredStock8.60%SeriesPreferredStock8%SeriesProlcrrcdStockPreferenceStock,$8.00SeriesProlcrcnccStock,$8.40SeriesPreferenceStock,$8.70SeriesCommonStockTRANSFERAGENTSFORPREFERRED,PREFERENCEANDCOMMONSTOCKIndusulalValleyBankandTrustCompany634HamiltonMallAllentown,Pennsylvania-18101IrvingTrustCompanyOnoWallStreetNewYork,NowYork-10015PennsylvaniaPower&LightCompanyTwoNoahNinthStrcclAllentown,Pennsylvania-18101REGISTRARSFORPREFERRED,PREFERENCEANDCOMMONSTOCKTheFirstNationalBankolAllentownHamiltonMallatSeventhAllentown,Pennsylvania-18101MorganGuarantyTrustCompanyolNcwYork23WallStreetNewYork,NewYork-10015DIVIDENDDISBURSINGOFFICEFORPREFERRED,PREFERENCEANDCOMMONSTOCKTreasurerPennsylvaniaPower&LighlCompanyTwoNorthNinthStreetAllentown,Pennsylvania-f8101 ACCOUNTANT'SOPINlONHASKINS&SELLSCertifiedPubtlcAccountantsTwoBroadwayNewYork10004TotheShareownersandBoardofDirectorsofPennsylvaniaPower&LightCompany:WehaveexaminedthebalancesheetsofPenn-sylvaniaPower8LightCompanyasofDecember31,1973and1972,therelatedstatementsofin-come,earningsreinvestedandsourcesoffundsusedfornewconstructionfortheyearsthenendedandthescheduleofcapitalstockandlong-termdebtasofDecember31,1973.Ourexaminationwasmadeinaccordancewithgenerallyacceptedauditingstandards,andaccordinglyincludedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircumstances.Inouropinion,suchfinancialstatementsandschedulepresentfairlythefinancialpositionoftheCompanyatDecember31,1973and1972andtheresultsofitsoperationsandsourcesoffundsusedfornewconstructionfortheyearsthenended,inconformitywithgenerallyacceptedaccountingprinciplesappliedonaconsistentbasis.HASKINS&SELLS',glg~P~o'ilI,;>jj"tIIJ)<<r/FebruaryS,1974InSeptember1973,PP&L'sboardofdirectorsandkeyolficersvisitedPhiladelphiaElectricCompany'sPeachBottomnucleargeneratingplantbeingconstructedalongthelowerSusquehannaRivernearthePennsylvania-Marylandborder.Thedirectorswereabletoseefirst-handtheintricatesafeguardsthatarebuiltintoeverynucleargeneratingfacility.TheCompanyfilesForm10-KannuallywiththeSecuritiesandExchangeCommission.Form10;KiscomposedofthisAnnualReporttoshareownersandadditionalinformationconcerningtheCompanyanditsoperations.ThisadditionalinformationwillbeavailableafterApril1~1974bywritingtoPennsylvaniaPower8LightCompany,TwoNorthNinthStreet,Allentown,Pa.18101~attention:Mr.GeorgeI.Kline,InvestorServicesManager. PPaLPENNSYLVANIAPOWER8LIGHTCOMPANYTwoNorthNinthStreet,Allentown,Pa.18101Telephone:AreaCode215821-5151LITHOINU.S.A.ryg~.~p'5'-<<.W-r*rL((~-'>pl;';L(,I(T4&v',~".%~"."-'>(~>r~~>.r~~~<<~r~i.><<<<>g~>>>>g~<<.r..>1'Tkl~>'r~g.~~a<<Ig'0,-<<r..".>r~.[>>,M~45~+~ a,I,,gj,i(jvECEksJUL111973m5U.S.ATO)A!CENERGYK:*Yii::-!'.:8MailSec!hnQ)0-38V0"388ICPAF~w>y+~>g]($@jJpg(PEN1972annualreportNSYLVANIAPOWERA.LIGHTCOMPANY3AS ContentsTheYearinReviewTheEnergyCrisisFinancialsNotestoFinancialStatementsDirectorsandPrincipalOfficers2-1011-1416-2222-2324HIGHLIGHTSRevenuesNetIncome..EarningsPerSharebasedonaveragenumberofsharesofcommonstockoutstanding....,..........Dividendspershareofcommonstock..TotalUtilityPlant.........2.482.371.641,637,040,0001.601,458,707,00019721971.$345,792,000$300,707,00057,921,00048)572,000CoverPhotos(c/ockw/se/romfop)PeggyWilcox,consumeradviserinthenewlyformedConsumer&CommunityAffairsDepartment,listenswhileaPP&LcustomercommentsonseveralaspectsoftheCompany'soperations.Anaquaticbiologistsurveyspartofa50-milestretchoftheSusquehannaRiveraspartofa10-yearenvironmentalsurveillanceprogramforPP&L'sproposedSusquehannaSteamElectricStation,theCompany'sfirstnuclearplant.Constructioncontinuesonthefirstoftwo800,000-kilowatt,oil-firedgeneratingunitsattheMartinsCreeksiteontheDelawareRiver.TheunitisscheduledtobeinserviceearlyIn1975.AttheheightofTropicalStormAgnes,BrunnerIslandgeneratingstationhad15feetofwaterinthebasement.Threeweeksafterthispicturewastaken,andinaremarkabledisplayofteamworkandeffort,thestationwasbackinservice. President'sMessageEventhoughincreasesintensionsandproblemssometimeseemtobeanewnorm,weconsiderthat1972wasagoodyearfortheCompany.Amodestimprove-mentinearningspersharewasmadepossiblebyhigherelectricservicerateseffectivelastMarchandbythefavorableperformanceofourmajorgeneratingsta-tions.Thisperformancewasachieveddespitethemorethan$1.6millionofspe.cialcosts(equalto10centsashare)causedbyTropicalStormAgnes.WeparticularlycallattentiontothemanyPP&Lemployeeswhoconductedthem-selveswithsuchoutstandingskillanddedicationinavarietyofdifficultandhazardoussituationsduringAgnes.Thehavoccausedbythefloodhasbeengreatlymitigatedbycourageousself-helpandmassivereliefandrehabilitationassis-tance.Whilemuchremainstobedone,favorableprospectsforNortheastPenn-sylvaniahavebeenre.established.Theaffectedcommunitieshave,injustafewmonths,madeagreatdealofprogress.NotwithstandingthedisruptionofAgnes,theoverallpatternforthePP&Lserviceareafortheyearwasoneofcontinuedeconomicgrowthandrisingdemandsforenergy.Wewereabletomeetinfulltheseincreasedelectricalrequirements.Wealsoexpecttomeetwithoutdifficultythepre-dictedlargerrequirementsfor1973.PP&L,alongwiththePennsylvania.NewJersey-Maryland(PJM)Interconnectionofwhichweareapart,isexpandingitsgeneratingcapacity.Earlyin1972,ourMontourNo.1generatingunitwentinserviceanditscompanionunit,MontourNo.2,isnearingcompletion.Thissecondunitisnowintrialoperationandshouldbeinregularservicethisspring.Thesetwocoal-firedunitstotal1.5millionkilo-watts.TheywillincreasePP&Lgeneratingcapacitybyover40percent.UnderlyingtheconstructionoftheseandothernewfacilitieswastheCompany'ssuccessfulfinancingprogram.Theyear1972markedanall.timehighinraisingnewcapital.Atotalof$165millionwasobtainedthroughtheseparatesalesofbonds,long-termnotes,preferencestockandcommonstock.WeemphasizeagainthatourfinancingwaspossibleonlybecausetheCompanyhasmaintainedarecordofgoodfinancialperformance.Suchperformanceincludesthreeessentialrequirements:asoundbalanceinthecapitalstructurebetweendebtandequitysecurities,adequateearn.jngscoverageofinterestchargesandgrowthinearningspershareforthecom-monstockinlinewiththeshareowner'sincreasedinvestment.Otherwisewecan-notmaintaininvestorconfidenceandattracttheneedednewcapital.Sincenewfundsneededinthenextfiveyearsareestimatedtobe$1.5billion,westresstheparamountimportanceofsafe-guardingandcontinuingPP&L'srecordofgoodfinancialperformance.Itbecomesevermoreessentialthatthepublicalsounderstandandacceptthisfactbecauseourfinancialhealthisnecessaryforacon-tinuationofqualityelectricserviceforourcustomers.Aswenowseetheconditionsthatexistinthenationalandregionaleconomies,themeetingofthisfinancialresponsibilitymeansperiodicrateincreases.Weareawareoftheneedforproductivitygains.Butsuchgainscannotmeetthetotalneedsofthesituation.WeexpecttofileinthenearfuturearateincreaseapplicationwiththePennsylvaniaPublicUtilityCom.mission.AmajorthrustoftheCompanythrough-outtheyearhasbeentocarryoutourcommitmenttoconservationofenergy.During1973weexpecttosubstantiallyextendourexpertiseinthisfieldandgreatlyincreaseourmarketingofpractical/Qrg%3waysandmeansbywhichourcustomerscantakestepstoconservetheirrequire-mentsforelectricity,particularlyduringpeakperiods.Conservationduringpeakperiodsisespeciallyimportantbecauseitistheincreasesinpeakperiodusethattriggernewconstructionrequirements,andrelatedfinancingneeds.Ourpolicyofconservationofenergywastheoutgrowthofavarietyofshortandlong-termconsiderations.Oneofthemainreasonswasth'eimpending"energycrisis"(seeseparatesectionstartingonpage11).Coalhasbeenrestrictedbyenvironmentallimitations.Inmanypartsofthecountry,naturalgasisbeingrationed.Ourdomesticoilproductionisfarshortofmeetingtotalpetroleumneeds.Theoverallresultisanincreasingdemandforelectricityascustomersturntothisformofenergy,wherefeasible,inordertooffsetscarcitiesinsuppliesofotherfuels.Thecircumstancesclearlypointtoin-creasingneedsfornuclearpowerplants.Ithasbecomeamatterofthehighestpriorityforthecountrytodevelopnewsuppliesofgasandoil.Also,itiscriticallyimportanttoencouragethepromptcorn.pletionofelectricpowerfacilitiesnowplannedandunderconstruction.Theavoidanceofdelayincompletingsuchelectricfacilitiesisoneofthebestwaysnowavailabletolessentheenergycrunchthatissorapidlyapproaching.Ofcourse,thekeytosettingnecessarynewgovernmentalpoliciesispublicunderstandingofwhattheenergycrisisisallabout.Todoourpartinthisprocess,wehaveinstitutedbroadandintensiveinformationprograms,bothwithindividualcustomersandthegeneralpublic.Becauseofthelong-rangeimportanceofthesematters,wehopethesediscussionswillbepersuasive.Towardthisendweaskfortheactivesupportofourshareownersincarryingforwardthisprogram.Respectfullysubmitted,JackK.Busby,PresidentMarch1,1973 YEARINREVIEWRevenuesin1972were$346million,thehighestintheCompany'shistory.Thislevelwasreached,ofcourse,withtheassistanceofhigherrateschargedforelectricservice.Thiscompareswithrevenuesof$301millionin1971.Thekilowatthoursalesgainwas9.2percentover1971intheresidentialcategory,11.3percentinthecommer-cialsectorand6.7percentintheindustrialarea.Ineachcase,theseincreasesareabovelastyear'sandreflectthegeneralimprovementinthenationaleconomy.Overall,therateofgrowthwas8.5percent.Therealsignificanceofthisgainoverthe1971levelwasthateveninthefaceofsubstantialandgrowingeffortsbytheCompanytopromoteenergyconservation,theuseofelectricitycontinuedtorise.Whileit'sstilltooearlytotellwhetherintensifiedcon-servationeffortswillhaveasignificanteffectonfutureenergydemands,presentlywebelievethatrisingdemandsforelectricservicewillrequirealargeandcontinuingcon-structionprogram.BuildingtoMeettheDemandBuildingthefacilitiestomeetapredicteddemandforelec-tricityisabigandgrowingjob.In1972theCompany'sconstructionexpendituresreached$219millionandareexpectedtorisesteadilyintheyearsahead.Thismas-siveamountofconstructioncausedonepersontosuggestthatPP8Lwasactuallyalargeconstructioncompanywhichhappenstosellelectricityasasideline.Thischaracteriza-tion,whilefacetiousinnature,doesemphasizetheverysubstantialbuildingtaskfacingtheCompanyaswestrivetoprovideforourcustomers'nergyneeds.OneofthelargestblocksofnewgeneratingcapacityeveraddedtothePP8LsystemwaswelcomedaboardlastMarchwiththeadditiononscheduleofthe720,000-kilowattNo.1unitattheMontourSteamElectricStationinthenorthwestpartofPP8L'sserviceterritory.Thisunithasper-formedverywellsinceitsstartupandcontinuestodowell,certainlydueingoodparttothesubstantialeffortstakentolearnfromtheproblemsassociatedwiththeconstructionandstartupoftheBrunnerIslandNo.3unit.TheNo.2companionunitattheMontoursiteisnearingcompletionwithanin-servicedatescheduledforthespringofthisyear. InadditiontotheMontourproject,therewasverysub-Istantialprogressmadeduring1972ontwo800,000-kilo-wattoil-firedunitsattheMartinsCreeksiteontheDelawareRiver.Attheendof1972,thefirstoftheseunitswas28percentcompleteandisscheduledtocomeinserviceearlyin1975.Thesecondunitwas2percentcompleteandisscheduledforserviceearlyin1977.TheCompanyisarrangingwithapipelinecompanyforthedeliveryoflow-sulfuroiltotheMartinsCreekstationbyaproposedpipelinefromadeepwaterterminalontheDelawareRiver.OnFebruary8,1973,thePennsylvaniaPublicUtilityCommission(PUC)authorized-subjecttoanumberofconditions-operationofthepipelinebetweenaterminalsouthofPhiladelphiaandtheMartinsCreekplant.Inalengthyorderfollowinganextensiveinvestigationduringwhichenvironmentalconcernswereaired,thePUCfoundthepipelinecompanyentitledtoapermitfortrans-missionofoilthroughthe$45million,five-countyline.ThecompanymaynotstartconstructionuntilitgetsrequiredapprovalsfromtheDelawareRiverBasinCommissionandotherappropriateagencies.PPBLisinvestigatingalternatetemporarytransportationifo'rtheoilnecessarytooperatethenewMartinsCreekunitsshouldconstructionofthepipelinebeundulydelayed.The300,000kilowattsofcoal-firedcapacityatMartinsCreekranwellmostoftheyearbutencounteredsomediffi-cultieslatein1972.UnitNo.1waslateinreturningfromascheduledoverhaulduetogreater-than-expectedrepairrequirementsandwasoutofservicefor82days.WhileUnitNo.1wasbeingrepaired,UnitNo.2sufferedalubri-cationfailure.AsofFebruary1973,bothunitswerebackinservice.NuclearPlansMoveAheadRegulatoryproceedingsinvolvingaconstructionpermitfortheSusquehannanuclearstationnearBerwickcontinuedduring1972.TheCompanyoriginallyannounceditsinten-tiontobuildthetwo1.1-million-kilowattunitsinSeptemberof1970.Sincethattime,PP&LhasbeenfollowingthepermitandlicensingproceduresrequiredbytheAtomicEnergyCommission(AEC)forsecuringapprovaltocon-structtheplant.Theseproceduresarethoroughandverydetailedandcovereveryconceivableaspectoftheplant'sdesignandconstruction.Aconstructionpermitwillbeis-suedonlyafterithasbeenestablishedtothesatisfactionoftheAECthattheplantcanbebuiltandoperatedwithoutrisktothehealthandsafetyofouremployeesorthegeneralpublicandthatitmeetsallenvironmentalstandards.In'4~JlA,ghArevolutionaryconceptinservicecenterdesign,thecircular;Lancasterfacility,above,allowsefficientinventorycontrolandspeedydispatchofservicecrews.Withallthediscussionaboutinstallingadequatesuppliesofelectricgeneratingcapacity,wesometimesforgetthatstringingthelinestodelivergeneratedpowerisabigpartofourconstructioneffort.In1972,forexample,PP&Lcrewsstrung460milesoftransmissionanddistributionlines. Aprilof1972theCompany'sapplicationforaconstructionpermitwasfavorablyreviewedbytheAEC'sDirectorateofLicensingandbytheAdvisoryCommitteeonReactorSafeguards.InJuly,theCompanysubmittedasupple-mentalandgreatlyexpandedenvironmentalreport.TheinitialhearingswereheldatBerwicklateinFebruaryofthisyear.FurtherhearingswillbeheldduringthesummerandtheCompanyhopesthatbylate1973groundcanbebrokenandworkcanbeginontheunits./Whenonetakesintoaccounttheapproximatelysixyearsrequiredtoactuallybuildanuclearplant,itiseasytoseethatfromstarttofinish,theplacinginserviceotanuclearstationrequiresabout10years.Thiscompareswiththesixtoeightyearsrequiredforafossil-fueledstation.Eventhoughthelengthoftimetobuildanuclearplantissub-stantial,andeventhoughthecapitalcostfortwonuclearunitsattheSusquehannasiteispresentlyestimatedtobe$1.2billion,nuclearpowerremainsanessentialeconomicalcomponentinmeetingtheCompany'stutureenergyre-quirements.Wefeelthatthisisparticularlysoinlightoftheobviousshortagesinotherfuelsrequiredtogenerateelec-tricityandinthefaceofmountingenvironmentalrequire-ments.Whileitistruethatnoformofelectricalgenerationisabsolutelywithoutenvironmentaleffect,wefeelthatnuclearpoweristhecleanestalternativeavailablefortheforeseeablefuture.TheCompanyhasmadeagreatefforttodiscussthisissuewithinterestedcitizensateveryoppor-tunityandtoexplaintothemtherelativemeritsofanuclear-fueledgeneratingfacility.Noteveryonewe'espokento,ofcourse,issatisfiedwiththeseexplanationsbutwefeelthatmostpeopleseetheneedforsuchplants.Companymanagement,fromtheBoardof'Directorsondown,hastakensubstantialstepstobecomeawareofalloftheenvironmental,safetyandsocialfactorsassociatedwiththeconstructionofanuclearfacility.TheBoardofDirectorsforexample,lateinSeptember,participatedinacomprehensiveprogramofindependentexpertbriefingonnuclearpower,includinganinformationaltriptoGen-eralElectric'snuclearfacilitiesontheWestCoast.ThemanagementofyourCompanyfeelscontidentthatitisactinginthebestinterestsofthepublicandPP&Lshare-ownersbyproceedingtousenuclearpowerinaPP&Lgeneratingstation.TheWiseUseofEnergyInthisperiodofenergyshortages-andimpendingenergycrisis-buildingtomeetsurgingdemandmustbecoupledwithaprogramtoencouragethewiseuseofenergyre-sources.Asmentionedintheinsertbeginningonpage11anddiscussedthereinmoredetail,theCompanyin1972undertookaverysignificantshiftinitsmarketingpolicy.ThisshifttookformearlyintheyearwhentheMarketingDepartmentwasrestructuredandredesignatedtheCon-sumer&CommunityAtfairsDepartment.Actuallythissig-nificant'changehadbeendevelopingforquiteanumberofyears.In1970theCompanyeliminateditsadvertisingexpendituresforthepromotionofelectricheatandbegantodrasticallycutdownonthenumberofpromotionalallow-ancesgrantedtovarioussalesalliesoftheCompany.Theswitchcompletedthispastyearthusformalizesashiftfromabasicpolicyofpromotiontooneofconservation.TheCompanyisalsosponsoringforumsforgroupspar-ticularlyinvolvedinenergyutilization.Forinstance,theCompanyinSeptembersponsoredanenergyconservationforumforarchitectsandengineers,Inyearspast,agather-ingotthesepeoplehadbeendevotedtoencouragingthemtoselectelectricityastheenergysourceinthebuildingsthattheydesigned.However,in1972,theCompanyde-voteditsmessagetoenergyconservationinthedesignandconstructionofstructuresandsoughttoenlistthesupportofthisinfluentialgroup.Themajorityofthearchi-tectsandengineersinattendancefeltthattheeffortwasworthwhileandcommendedtheCompanyfortakingtheinitiativeinspeakingtotheenergyissue.TheCompanyintendstocontinueholdingsuchconferences,notonlywitharchitectsandengineers,butalsowithindustrialandbusi-nessleaders.Onamorephilosophicallevel,theCompanyparticipatedwithLehighUniversityinthesponsorshipofasymposiumonthequestionofeconomicgrowth.Thesymposiumheardfrommanydistinguishedhistorians,sociologists,econo-mists,andindustryrepresentativesregardingtheprosandconsofeconomicgrowthinlightoftheenvironmentalandresourcelimitationspresenttoday.Theconferencewasbasicallyaninformationaloneandassuchcameupwithnospecificrecommendations.However,sinceeconomicgrowthissointimatelylinkedtotheuseandavailabilityofenergy,theCompanyfeltthatthisdiscussionwasavalu-ableefforttowardscomingtogripswiththeproblemsofenergyutilizationinasocietyofchangingvalues.EnergyandtheEnvironmentLastyearwestatedinthisreporttheCompany'sphilosophyincopingwithenvironmentalmatters.Itwas-andis-thatPPBLiscommittedanddeterminedtodowhateverisre-quiredofusandmore,wherepractical,tominimizetheeffectofouroperationsontheenvironment.ThisisstilltheCompany'sbasicposition.However,thedimensionsoftheenergydilemmafacingtheUnitedStatesaresuchthatsomehardquestionsmustbeaskedabouttheformulationofenvironmentalrulesandregulations,asubjectdiscussedintheenergycrisisinsert.ThereweremanyongoingenvironmentalprojectsintheworksatPP8Lin1972.TheMontourSteamElectricStation,whoseNo.1unitcameonthelineinthespring,featuresoneofthemostcomprehensiveenvironmentalmonitoringandcontrolsystemsofanyelectricgeneratingstationofitssize.Forinstance,theplanthasoneairandfivewatermoni-toringstationstiedtotheplantcomputertokeepclosetabsonchangingconditionsthatmaycallforcorrectiveaction.Twootherstationsformonitoringairqualitywillbeplacedinservicelaterafterpreliminarydatanowbeinggatheredindicateswheretheyshouldbelocated.Ofcourse,theplantalsohasthemajorpiecesofenvironmentalequipmentIn-housetrainingprogramsreceivedaddedemphasisin1972.ThePP<rainingandDevelopmentCenter,left,offeredabout25separatecoursesinManagementDevelopmentandinSkillsandTechnicalsubjects,likethisweldingcourse.Inanothertrainingeffort,aPPBLAffirmativeActionprogramassistantconductsanorientationfortwoyoungwomenemployeeshiredthroughtheNationalAllianceofBusinessmenJOBSprogram. whicharenowcommononallelectricalgeneratingstationsofthissize.Theseincludeahighlyefficientdustremovalsystem,highchimneyswhichcarrygasestoaltitudeswheretheycanbereadilydispersed,andcoolingtowerswhichallowthecoolingandrecirculationofwaterusedintheprocessofgeneratingelectricityratherthanreturninghotwatertotheriver.Inaddition,itisanticipatedthattheMon-tourPreserve,apublicrecreationandecologicalstudyareaassociatedwiththereservoirwhichservesasanalternatesupplyfortheplant'swatersystem,willmovetowardcom-pletionin1973.ConstructionofbagfiltersforairpollutioncontrolofunitsNo.1andNo.2atSunburySteamElectricStationispro-gressing.Itisanticipatedthatthissystem,whichhasbeendesignedtotrapandremovemorethan99percentofthedustbeforeitreachesthechimneys,willbecompletedinthespring.Inanotherpotentialenvironmentalimprove-mentattheSunburystation,theCompanywillconductaone-yearpilottestofawetlimestonescrubbersystemwhichwouldremovesulfurdioxidegas(SOa)fromasmalltestportionofthetotalboilerfluegasflowfromtheNo.4unit.ThetestistargetedforaJune1973startup.There-movalofsulfurdioxidefromstackgasesisamajor,andasyetunsolved,environmentalproblemassociatedwiththegenerationofelectricpowerwhenusingfossilfuels.TheCompany,ofcourse,issubjecttocertainpresentanddevelopingFederal,regional,stateandlocallawsandregulationswithrespecttoairandwaterquality,landuseandotherenvironmentalmatters.ThePennsylvaniaDe-partmentofEnvironmentalResources(DER)adoptedini-tialregulationsaspartoftheimplementationplanforPenn-sylvaniarequiredbytheFederalCleanAirActasenforcedbytheUnitedStatesEnvironmentalProtectionAgency.UnderthepresentlyeffectiveregulationsoftheDER,com-paniesnotincompliancewiththeemissionregulationsarepermittedtoapplyforvarianceswhich,ifgranted,wouldallowuptothreeyearsinwhichtoachievecompliance.TheCompanyfiledthenecessaryapplicationsforvari-ancesoutliningitsplansforachievingcompliance.Theseplansinclude,amongotherthings,installingadditionaldustcollectionequipmentandtheprocessingofcoaltoreducethesulfurcontentpriortoburning.Thesevariances,ifgranted,willprovidetimeduringwhichwecangetourequipmentdesigned,orderedandinstalled.IClvrci4.ThededicatedeffortsofmanypeoplewerethemainreasonwhyPP&LwasabletorestoreelectricservicequicklytothosecustomersaffectedbyTropicalStormAgnes.Workers,above,beginthetedioustaskofcheckingmachineryfloodedattheBrunnerIslandStation.Attopright,theCompany'semergencycontrolcentercoordinatesallservicerestorationefforts'round-the-clock.Andatbottomright,alinemanopensaswitchalongafloodedstreetsothatpowercanberoutedaroundanaffectedarea. Forthefuture,theCompanyisunabletopredicttheulti-mateeffectofdevelopingenvironmentalregulationuponitsexistingandproposedfacilitiesandoperations.How-ever,itispossiblethatsuchregulationmayrequiretheCompanytomodify,supplement,replaceorceaseoperat-ingcertainofitsequipmentandfacilities,delayorimpedeitsconstructionandoperationofnewfacilitiesandrequireittomakesubstantialadditionalexpendituresinamountsnotyetknown.Becauseofthestateofenvironmentaltechnology,itismucheasiertobringourlargenewplantsintocompliancewithexistingregulationsthanitiswiththesmallerolderstations.Forthesereasons,plusthoseofhighoperatingcostandgeneralinefficiency,theCompany,asplanned,wasableduringtheyeartoretiresomeoldelectricgenerat-ingunits.WiththepermissionofthePennsylvaniaPublic.TJUtilityCommission,twogeneratingunitsattheCompany'sMoltwoodSteamElectricStationwereretiredonOct.1.Thesetwocoal-firedunitshadbeeninservicesince1925.Sparepartshadbecomeincreasinglydifficulttoobtain,theunits'ostofoperationhadbeenhighandtheiroutputhadbeenreducedtoholddownstackemissions.InJune,operationsatPP&L'sStantonSteamElectricStation,be-tweenScrantonandWilkes-Barre,werediscontinued.Orig-inallyStanton'sshutdownwasscheduledforOct.1alongwiththetwoHoltwoodunitsbutdamagebyTropicalStormAgnesmovedaheadthedateforclosing.This106,000-kilowattplant,likethetwoHoltwoodunits,wasalsooldandsufferedfromhighoperatingcosts.TropicalStormAgnesTheearlyshutdownoftheStantonplantwasonlyasmallpartoftheoveralleffectontheCompanyofTropicalStormAgnes.Actually,intermsofwhatcouldhavehappenedtotheCompanyasaresultofthestorm,theCompanycamethroughtheexperienceinrelativelygoodshape.Effectsofthefloodreducedearningsby$1.6millionor10centspershare.FinanciallosseswouldhavebeenmuchgreateriftheCompanyhadnothadfloodinsuranceandareservefortheextraordinarypowercostsincurredduringthefloodperiod.ThemainimpactofthestormwasborneprimarilybyourcustomersintheWilkes-BarreandHarrisburgareas.Alltold,about110,000PP8Lhomesandbusinesses,orabout13percentofourcustomers,wereoutofserviceatonetimeoranotherduetodamagedelectricdistributionsys-tems,themaximumatonetimebeing55,000.Throughouttheemergency,asourceofpridefortheCompanywasthededicatedjobdonebysomanyPPBLmenandwomen.RestorationofserviceforcustomersbecameatotalCom-panycommitment.Oneofthemostnotablejobswastherestorationtoactiveservicewithinthreeweeksofallunits attheBrunnerIslandplant.AnotherwastheconstructionfromscratchofasubstationtoservetheWilkes-Barrearea,ajobdone'roundtheclockandcompletedinjust78hours.Inaddition,theCompanycooperatedinmakinglandavail-ablefortheplacementoftemporarymobilehomes.RevitalizationoftheareasaffectedbythefloodcontinuestobeaprimeconcernofyourCompany,particularlyintheWilkes-Barreregion.Asyoumayknow,PP8LwasintheforefrontofeffortsduringtheFiftiesandSixtiestobreatheneweconomiclifeintoournortheastregion.Thepeopleatthattimerespondedwithagreatdeterminationandmadegreatstridesatre-establishingthearea'seconomicvitality.Wehavenodoubtthat,withtheassistanceofFederalandstatefunds,thehardworkinganddeterminedpeopleofthatregionwillonceagainbringtheareabackfromseveredifficulties.Asonelocalleaderputit,"Thesearepeople,remember,whobattledeconomicadversitybeforeandwon.Andthey'lwinagain."HigherRates,ConstructionFinancingTheinevitabilityofhigherratesforelectricityisbecomingmoreapparent.AquicklookshowsthatthePP&Lresiden-tialpriceofelectricitybetween1960and1969declined8percentwhiletheconsumerpriceindexroseawhopping24percent.However,since1969,thingshavechanged.Im-provedtechnologieswhichlongpermittedefficiencesarenolongeravailableinthesameabundanceasyearspast.Inaddition,inflationhascausedtheoverallcostofdoingbusi-nesstorisesharply.Theresultofallthisisthatthepriceofelectricitymustbegintoreflecttoday'sincreasingcostofprovidingit.Thefollowinglistshowsthemajorchangesmadeinratesforelectricserviceinrecentyears.March1970-Taxsurchargetorecoverthecostofin-creasedstatetaxes.April1970-Generalrateincreaseof5percent.Dec.1970-Fueladjustmentclausetoadjustthepricesofelectricserviceforvariationsinthecostoffuelusedtogenerateelectricity.May1971-Generalrateincreaseof4.4percent.1972sawacontinuationofthispatternofseekingraterelieftocovertheincreasingcostofprovidingelectricservice.A6percentrateincreasewasgrantedbythePennsylvaniaPublicUtilityCommissionasofMarch28,1972.Thisincrease($17millionannually),inadditiontothe4.4percent($12millionannually)grantedlastyear,wasthePUC'sallowanceonourrequestfiledinearly1971.NowhereisthecontinuingneedforadequateratesmoreclearlydemonstratedthaninthesizeandcostoftheCom-pany'sconstructionprogram.Tomeettheenergyneedsofourcustomers,theCompanymustbuildabout$1'/~billionofelectricfacilitiesinthenextfiveyearsalone.Sincethenormaloperationsofourbusinessonlygenerateabout25percentofthefundsrequiredforsuchconstructionpur-poses,three-quartersoftheneededmoneymustberaisedbysellingPP8Lsecuritiesintheopen-market.ThistheCompanyhasbeendoingwithincreasingfrequencyinthelastfewyears.1972wasyetanotherverybusyyearinthecapitalmarkets,asindicatedbelow:.~FirstMortgageBonds,7'/e%Seriesdueintheyear2002$75,000,000~Notesdue1974-1976,6~/4%-6~h%8,300,000~PreferenceStock,$8.00Series,350,000shares35,000,000~Commonstock,2millionshares46,940,000TOTAL$165,240,000TheCompanywasalsograntedapprovalin1972topar-ticipatewiththeLehighCountyIndustrialDevelopmentAuthorityinthefinancingofupto$44millionoftax-free industrialrevenuebondsforpollutioncontrolpurposes.ThisformofauthorityfinancingforpollutioncontrolwasonlyrecentlymadeavailabletoutilitycompaniesasaresultofchangesinPennsylvanialaw.TheCompany's1973financingyearhasalreadybegunwiththeJanuarysaleof$80,000,000of30-year,7~/spercentFirstMortgageBonds.Plansfortheremainderoftheyearcallforthesaleofadditionaldebt,commonandpreferredorpreferencestock.Sincethegreatbulkofthefundsweneedmustberaisedfrominvestorslikeyourselves,wecon-tinuallyemphasizetoourcustomersandtoregulatoryoffi-cialsthatitisessentialthatourratesbehighenoughtogiveusthefinancialperformancewhichwillattractthisverylargenumberofinvestordollars.PP&L,ofcourse,iscommittedtodoingwhatitcanthroughcostcontrolandincreasedeffectivenesstoholddowntheneedforhigherrates.ButasmentionedinthePresident'sMessage,theincreasingimpactofhighercostsfarexceedsouropportunitiestoreducethem.Two-wayCommunicationTheCompanyplacesgreatemphasisoncommunicatingwithitsvariouspublicsonmatterssuchasrates,ourcon-structionprogram,environmentalissues,nuclearpowerandawholehostofothersubjectswhichwillaffecttheCompany'sperformanceintheyearsahead.ThatiswhytheCompanyin1972accelerateditseffortstobringtheCompany'smessagetoabroadercross-sectionofpeople.Theserviceareanewsconferencesinitiatedin1971werecontinuedthispastyear.Thesewerecandid,two-waydiscussionsbetweenmanagementandourlocalmedia.Noholdswerebarredandeverysubjectraisedreceivedanairing.OurwillingnesstobeavailableinthismannerispartofaconsciousefforttobuildcredibilityfortheCom-pany.Certainly,noteveryoneagreeswithus,butwefeel0iri~PP&L'sparticipationinresearchprogramsisgreatlyexpanding.ThreesponsoredbytheElectricPowerResearchInstituteandtowhichPP&Liscontributingareshownhere.Above,researchbyHighVoltagePowerCorp.onextra-highvoltageundergroundtransmission,usescompressedgasasaninsulator.Magnetohydrodynamics(MHD),topright,isadevelopingconceptforgeneratingelectricitywherebyagasflameisdirectedbetweencurvedelectromagnetstoproduceelectriccurrent.ItfsbeingconductedattheAvcoEverettResearchLaboratory.AndworkcontinuesbyGeneralElectricCo.onultra-highvoltageoverheadtransmission,bottomright,inthe1.1-million-voltto1.5-million-voltrange.Presently500,000voltsisthehighesttransmissionvoltageonthePP&Lsystem. thatPPBLbenefitsfromthisopenpolicyofwillingnesstodiscussallpertinentissuesrelatingtoelectricenergy.TheCompany'srollingcommunicationsmedium,"TheEnergyofMan"exhibit,completedanothersuccessfulyearoftouringtheservicearea.Thetrain,whichcontainsmuchinformationabouttheCompanyanditsfutureplanswasvisitedthispastyearbymorethan100,000persons.Thisbringsthetrain's1~/2-yearattendancetoabout225,000.'ManagementChangesCliffordL.Alexander,Jr.,partnerintheWashington,D.C.lawfirmofArnold8Porter,waselectedtotheCompany'sBoardofDirectorsattheAnnualMeetingonApril26,1972.HefillsthevacancycreatedbytheretirementofDr.EugeneFarley,chancellorofWilkesCollege.J3r.FarleyhadservedPPBLwithdistinctionfor10years.Mr.AlexanderservedasforeignaffairsofficerwiththeNationalSecurityCouncilunderPresidentKennedyin1963andasaWhiteHousecounseloncivilrightsunderPresi-dentJohnson.HewaschairmanoftheU.S.EqualEmploy-mentOpportunityCommissionfrom1967to1969.HeisactivewiththeLegalDefenseFundoftheNAACPandwasrecentlynamedsecretaryoftheNationalUrbanCoalition.Mr.AlexanderisnostrangertoPPBLhavingpreviouslybeenretainedasaconsultantintheimplementationofanaffirmativeactionprogramtohelpassureequalemploy-mentopportunitiesthroughouttheCompany.EffectiveDec.1,S.FredDiffenderferretiredasvicepresidentreportingtothepresidentonspecialassign-ments.Mr.DiffenderferhadservedtheCompanymostad-mirablyfor42years.OnJuly1,1972LeonL.NonemakerwasappointedvicepresidentofthenewConsumer8CommunityAffairsDe-partment.Hewasformerlyvicepresident-Marketing.WithintheneworganizationwhichMr.Nonemakerheads,therehasbeenestablishedateamofconsultantswhoad-viseandworkwithcustomersinadoptingenergycon-servationtechniques.Smallerthantheformermarketingandsalesorganization,theConsumer8CommunityAffairsDepartmentisstaffedbysome125consultantswhoofferadviceonwiseenergyuse.Theteamconsistsofconsult-antstoservicesome100,000commercialandindustrialcustomers.Andthereareresidential,consumereducationandagriculturalconsultantswhoworkamong750,000residentialandfarmcustomers. THEENERGYCRISISTherehasbeenagreatdealoftalklatelyaboutanenergycrisisintheUnitedStates.Andforgoodreason.Withsuppliesofneeded,fuelsinshortsupplyorsubjecttolimitedusebecauseofenvironmentalreasons;thereisconcernthattheenergydemandsofthenearfuture-betweennowand1985-maynotbemet.Thechartbelowshowshowthedemandforvariousfuelswillrisebythattime.inmanypartsofthemidwestthispastwinter.Denver,Colo.schoolchildrencanattesttothefact.Theirscheduleshadtobeshortenedbe-causeofshortagesoffuelneededtoheatandlighttheirschoolrooms.IndustryinWisconsinhadtocurtailoperations.Andinmanyotherpartsofthecountry-Pennsylvaniaincluded-naturalgasusersweretoldthattheirfuelwasscarce.Indeed,manygascompanieswereorderednottotakeonnewcustomersbecauseoftheproblems.681970GASIMPORTSOOM.NAT.GASNYOROOILIMPORTS00MESTICOIL1985U.S.ENERGYDEMAND5DISTRIBUTION(QuadrillionBTU's)125NUCLEARCOALWHYPP&LISCONCERNEDPP&Lisconcernedabouttheproblemfortworeasons.One,weareauserofkeyfuels.Tooperateourgeneratingstations,weuseabout7milliontonsof-coalayear.Wearepresentlybuildingtwooil-firedgeneratingunitsatourMartinsCreeksiteneartheDelawareRiverwhichwillrequire15millionbarrelsofoileachyear.Thesecondreasonweareconcernedabouttheenergycrisisflowsnaturallyfromthefirst.Itisthatweareanenergysupplierinadditiontobeingauser.Itstandstoreasonthatifouruseoffuelstogenerateelectricityiscurtailedbecauseofshortsupplies,ourabilitytosupplyelectricenergywillbeseverelyhampered.Andafterall,supplyingelectricityisourNo.1job.Whataretheconsequencesofnothavingenoughenergy?Schoolsmayhavetoclose,orattheveryleastoperateonamuchshorterschedule.Factorieswillnotbeabletooperateatfullcapacity.Asaresult,workersmaybelaidoff.Theuseofelectricdevicesinthehome-re-frigerators,ranges,-teievisions-mayhavetobecurtailed.These'areveryrealpossibilitiesifenergysuppliesareallowedtorunshort.Thesignsthatthe'UnitedStatesisalreadyinthemidstofadevelopingenergycrunchareap-parent.SevereshortagesoffueloilwereevidentSHORTAGEOFKEYFUELSThebasicproblemconcernsshortagesoffossilfuels-naturalgas,oilandcoal.Let'stakealookatthemoneatatime.-Theforecasteddemandfornaturalgasismuchgreaterthanthesupply,whichhasleveledoffandisdeclining.Thisshortageismostunfortunatebecausenaturalgasisverycleanburningandassuch,ispreferredforenvironmentalreasons.Oilshortagesrepresentanevengreaterprob-lem.Thisissobecauseoftheextensiveusemade inAmericaofoil-baseproducts,mostnotablygasolineforautomobiles.Inaddition,thereisanextensivehomeheatingmarketforoil.Also,oilhasbeenrecentlysoughtoutasalow-sulfurfuelforgeneratingelectricityinordertocomplywithenvironmentalrequirements.Evenattoday'slevelofuse,theUnitedStatesmustimportabout20percentofitsoilneeds.Basedontheanticipateddemands,theUnitedStatesmayhavetobeimportingover50percentofouroilsupplyby1985.Consideringthefactthatmuchofthisoilmustcomefromsources'ofquestionablefriendshiptotheU.S.,therearesubstantialnationalsecurity,aswellasbalance-of-paymentsproblems,inrelyingonforeignoilimports.Forthesereasons,thereisgreatem-phasistodayoncompletingtheAlaskaoilpipe-lineandgettingonwiththejobofexploringthecontinentalshelfaswellasotherdomesticloca-tionsfornewoilsources.Theproblemisthatthesestepsinvolveenvironmentalproblems.Un-tiltheseareironedout,domesticoilwillbeinshortsupply.Coalpresentsaperplexingproblem.EveryoneacknowledgesthattherearehugecoaldepositsavailableinthecontinentalU.S.Therearesev-eralproblemswithit,however.Muchofthecoaldoesnotmeettheenvironmentalstandardsforsulfurcontent.Therearesubstantialeffortsunderwaytodesulfurizecoalbuttheseresearcheffortshavenotyetproducedananswer.Anotherprob-lemisthatifAmericaistosubstaniallyrelyoncoalasafuel,wewillhavetofindagreatmanymorecoalminersthanarepresentlyavailable.Thiswillnotbeaneasytaskbecausepeoplearenoteasilyattractedtothisverydifficultoccu-pation.Andfinally,muchofthecoalavailablemustbestrip-mined.This,ofcourse,representstheultimateenvironmentaldegradationtomanypeople.Indeed,theU.S.HouseofRepresenta-tivespressedinitslastsessionforabanonthepractice.Sofortheseseveralreasons,amongothers,thevastsuppliesofcoalknowntoexistdonotnecessarilysolvethefuelshortage.EFFECTSONELECTRICSUPPLYShortagesofthesekeyfuelscanaffectelectricsuppliesintwoways.One,asmentionedearlier,isduetothefactthatweuselargequantitiesofthesefuelstogenerateelectricity.Thus,anyshortagecouldadverselyaffectourabilitytosupplyservice.Secondly,gasandoilshortagesinparticular,couldcausepeopletoswitchtoelec-tricityfortheirpower.Indeed,itisthispotentialforalargeswitchtoelectricitythatcouldsub-stantiallyboosttheneedforourservice.Forthesereasons,wearepresentlyinvestigatingallavailablealternativesforgeneratingelectricity.Uranium-nuclearfuel-isthemostobviousalternative.Therearesuppliesofuraniumavail-abletofuelAmerica'spowerneedsthroughtheendofthiscentury,utilizingpresenttechnology.Weconsidernuclearpoweralogicaladditiontoabalancedpowersupplysystem.We'eex-plainedmanytimestheextraordinarydesign,constructionandoperatingproceduresdevel-opedbytheAtomicEnergyCommission(AEC)fortheseplants.Wepointtotheunmatchedsafetyrecordofthenuclearpowerindustryandthestringentprotectionaffordedthegeneralpublicintheareaoftheplant.But,somepeo-pledonotagreewithus.Thus,adisputecon-tinuesandwhileitdoes,neededpowerplantsaredelayedandthepressureonthefossilfuelscontinues.Therearepowersourcesotherthanconven-tionalnucleardevelopment.Hopefulprojectslikethenuclearbreederreactor,fusion,magnetohy-drodynamics(MHD)andsolarenergy.Butrealis-tically,thesedevelopmentsaremanyyearsfromcommercialuse.Thus,theproblemofmeeting12 America'spowerneedsforatleastthenextde-cadeandahalffallstothebeleaguredfossilfuelsandtonuclearpower.ABALANCEDPOLICYISNEEDEDAreasonablebalancebetweentheneedformoreenergyandtheneedforacleanerenvironmentwouldhelpthesituation.Certainly,wesupporttheneedforacleanerenvironment.Butthefactsarethattherecent,andlaudable,enthu-siasminenvironmentalmattershasposedarateofchangeforouroperationsthatisverydifficulttocopewith.Allwesuggestisthatwepauseatleastlongenoughtoask,"Howquicklyoughtenviron-mentalrulesbetightened-withoutalsocon-sideringtheimpactintermsofeconomicandsocialsideeffects?""Whatistheeffect,forexample,ofimposingenvironmentalregulationscallingforcostlyequipmentofquestionableeffectiveness?"Wethinkthattheseareques-tionswhichoughttobeanswered.Wethinkthattheyarereasonablequestionsandwedonotfeelthattheyareinconsistentwithenviron-mentalquality.We,asaCompany,willcontinuetoworkforenvironmentalimprovement.AllweaskisthatnowthattheimportanceofenvironmentalqualityhasbeendeterminedtobeaprimarypartofeachandeverydecisionwemakeasaCompany,thattherebeatotalanalysisoftheeffects-onpeo-ple,onjobs,oncoststotheconsumer-ofsuchenvironmentalimpact.ENERGYCONSERVATIONInviewoftheshortageofkeyfuelsandthepo-tentialeffectonelectricalsuppliesifhomesandbusinessesswitchtoelectricityasaresult,itisineveryone'sbestinteresttoworkhardatcon-servingenergy.WeatPP8Laredoingourpart.AsmentionedintheAnnI2alReport,theCompanyisbuildingthegeneratingcapacityneededforthefuture,asshowninthischart.However,buildingisjustpartoftheequation.10,000WHEREWILLPPSLELECTRICITYCOMEFROM?MEGAWATTS80008000SUSO.ISUSQ2J..4000WINTEROEMANOMARTINSCREEK4MARTINSCREEK3MONTOUR22000AVARABEEVRNTERCAPACRV(leeeeledleeeIIRIReeene)70717273747578777878808182Theotherpartistoencouragewherepossiblethewiseuseofourenergyresources.Inkeepingwiththisthrust,theCompanyundertookin1972averysignificantshiftinitsmarketingpolicy.Employeesformerlyinvolvedinmarketingelec-tricityarenowinvolvedinconsultingwithenergyusersonthewisestandmosteconomicalusesforelectricity.Residentialconsultants,forin-stance,areworkingwithbuildersanddeveloperstoencouragetheuseofenergyconservationtechniquesinhomeconstruction.Industrialrep-resentativesaremakingplantsurveystoattempttodiscoverpotentialforenergyconservationinindustrialbuildingsandprocesses.PP8Lpeoplearegivingchartbriefingsontheenergycrisissituationtovariouscitizens'roupsandtoindi-vidualcustomers.13 TheCompanyhasalsoinitiatedadvertising,shownbelow,whichisorientedtowardthewaysacustomermayconserveenergy.AHomecology,l.zlIIr,.That'MoueJJYou'eWasttnt:!...[ItlaCoerorcollsopvsuohPgWo'roanxioustohearwhatyouthink5'VXIhhh~~isNwlHIcttl~~IWLMT%lilt'~)e~l~I='icKJQ'.".'..:>ACII~'IiProgramhasbeendevelopedforhomeeconomicsteachersinourserviceareaforuseinclassroomstoencourageconservationinthehome.TheCompanyhasalsoenteredintoacontractwiththeFranklinInstituteinPhiladelphiaforthedesignandconstructionofanenergyconserva-tion-orientedsinglefamilydwelling.Thisdwellingwillcontainexperimentalequipmentandsystemswhichwilldemonstratewaysofreducingenergyuse.TheCompanyhopestousethishomeasaspringboardforeffortstospreadmorebroadlythemessageofwiseenergyusethroughoutourserviceterritory.THEBASICPROBLEMISTIMEAfinal,overalllookattheenergycrisissituationsuggeststhatPPBL,andotherenergycompa-nies,cancontinuetomeetthenation'senergyneeds.Meetthemwithoutdelayingpeople'sas-pirationsforabetterlife.Withoutrefusingtoservenewcustomers.Andinthecaseofelectricservice,withoutrationing,andwithouthavingselectedblackouts.Buttimeisneeded.Timetostraightenoutthefuelshortageprob-lem.Timetosearchfor,discoverandmakeavail-ablethevastfuelsuppliesknowntoexist.Timeisneededtocometogripswithexistinganddevelopingenvironmentalstandards.Thismeansnewtechnologies,newprocessesandnewequipment,muchofitasyetunavailable.Andfinally,wemustbeallowedtobuildwith-outmoredelaythefacilitieswhichwillserveourcustomersintheyearsjustahead. STATISTICALSUMMARYCAPITALINVESTMENTCAPITALPROVIDEDBYINVESTORS-thousandsLong-termdebt................Preferredandpreferencestock..Commonequity................Short-termdebt1972$635,044231,375412,1301,278,54996,4821971576,760196,375351,2991,124,43476,2511970514,371156,375303,117973,86397,8781969474,18286,375268,233828,79098,5001968394,26886,375234,957715,60093,950Totalcapitalprovided$1,375,0311,200,685I,071,741927,290809,550RETURNONCAPITALPROVIDEDBYINVESTORS-asapercentageofaveragecapitalprovided......NUMBEROFSHAREOWNERS-preferred,preferenceandcommon7.56135,3997.34123,5986.83111,9097.1398,4506.9894,671UTILITYPLANT-thousandsTOTALUTILITYPLANT..........ACCUMULATEDDEPRECIATION..$1,637,040275,6271,458,7071,275,866274,911249,5511,120,0221,010,048225,205220,117UTILITYPLANTLESSDEPRECIATION$1,361,4131,183,7961,026,315894,817789,931ANNUALDEPRECIATION-asapercentageofaveragedepreciableplant............OPERATIONS3.33.23.2.3.23.2ELECTRICCUSTOMERS.....ENERGYSALES-millionsofkilowatthoursResidential-electricallyheatedhomes..........Residential-other........CommercialIndustrial.Other2,0423,9433,9336,4586371,7213,7583,5336,0536201,4593,6343,1985,8075851,1473,4262,8405;5665528483,2402,5504,916527863,344843,080828,643818,500805,523AVERAGEANNUALKWHUSE-residentialcustomers.....17,0138,03215,6857,51014,6837,08613,5316,45812,0815,871AVERAGEPRICEOFELECTRICITY-centsperkilowatthour........POWERCAPABILITY-kilowatts...PEAKDEMAND-kilowattsEMPLOYEES1.994,108,0003,598,000',7901.873,496,0003,294,000e6,5141.701.611.663,256,0003,124,0002,465,0003)238,000't2,850)000't2,5141000',3726,2386,225'Winterpeakshownwasreachedearlytnsubsequentyear.1peaksarethosewhichwoutdhaveoccurre'diftoadcurtaitmontmoasureshadnotbeeninoffoct.16AmoredetailodreviewoltheCompany'soperationsisavailable.Apostalcaidisprovidedwiththisreporttoaidyouinmakingthisrequest. FINANCIALSECTION STATEMENTOFINCOME19721971197019691968ThousandsofDollarsOPERATINGREVENUES(99%electric).................OPERATINGEXPENSES(Note3)Wagesandemployeebenefits...FuelPowerpurchases..............Interchangepowersales........Otheroperatingcosts...........Depreciation.Federalincometaxes(Note6)...Stateincometaxes(Note6).....,DeferredincometaxesProvisionDeferredinprioryears-creditInvestmenttaxcreditsDeferredAmortizationofdeferments-creditTaxes,otherthanincome.......OPERATINGINCOME............OTHERINCOMEANDDEDUCTIONSAllowanceforfundsusedduringconstruction..........Other-net$345,79255,22095,22013,514(34,569)39,51241,44612,5825,5203,624(795)7,349(2,194)25,658262,08783,70514,64729300,70748,19879,49918,963(15,468)33,21434,9039,416.3,256551(795)1,597(2,480)22,146233,00067,70716,242113255,31345,77961,62121,982(9,356)24,009321733,6991,287(795)1,573(2,539)18,197197,63057,6839,723192223,388205,94741,94644,60117,453(8,865)21,86528,98111,1133,28740,73134,81314,846(3,651)19,53526,27216,4102,430(795)3,339(2,540)8,167168,55254,836(795)1,955(2,005)7,293157,83448,1136,3695,868197~8)INCOMEBEFOREINTERESTCHARGESINTERESTCHARGESInterestonlong-termdebt...Interestonshort-termdebt..Otherinterestcharges......14,67698,38136,5073,84610716,35584,06230,8954,1094869,91567,59825,3817,194886,56661,40220,8135,935455,86053,97316,5273,58046NETINCOMEDividendsonpreferredandpreferencestock.........EARNINGSAPPLICABLETOCOMMONSTOCK..........COMMONSTOCKAveragenumberofsharesoutstanding...............Earningspershare,basedonaveragenumberofsharesoutstanding...............Dividendspershare......;...40,46057,92135,49048,57232,66334,93526,793-20,15333,82034,60914,52611,3926,4263,8223,822$43,39537,18028,50930,78729,998$2.48$1.642.371.601.971.602.321.602.301.5617,512,79315,690,49014,472,07613,277,36513,044,538SeeaccompanyingNotestoFinancialStatements,17 BALANCESHEETASSETSDecember3119721971ThousandsofDollarsUTILITYPLANT-atoriginalcostElectricSteamheatConstructionworkinprogress....Lessaccumulateddepreciation$1,386,2238,110242,7071,637,040275,6271,361,413$1,189,8185,661263,2281,458,707274,9111,183,796INVESTMENTS-atcostorlessSubsidiariesSafeHarborWaterPowerCorporation(t/sinterest)..Nonutilityproperty,lessaccumulateddepreciation..Other.3,1293,3152,5525,54014,5364,0463,3152,6554,54414,560CURRENTASSETSCashAccountsreceivable,lessreserveCustomersOtherMaterialsandsupplies(ataveragecost)Fuel.OperatingandconstructionOther13,72923,5103,33031,60112,8479,48894,50514,19718,7552,82428,10310,2656,12480,268DEFERREDDEBITSExtraordinarypowercostsOther1,6652,9854,650$1,475,1041,8852,4594344$1,282,96818SeeaccompanyingNotestoFinancialStatements. LIABILITIESDecember3119721971ThousandsofDollarsSHAREOWNERSINVESTMENTPreferredstock'referencestock4..........-.Commonstock'apitalstockexpense(deduction).(Noamortizationplanlnellect)Earningsreinvestedinbusiness(Notes4and5).116,375115,000278,484(6,592)140,238643,5053116,37580,000231,544(5,892)125,647547,674LONG-TERMDEBT4(Note2)635,044576,760CURRENTLIABILITIESBankloans.CommercialpapernotesAccountspayabieTaxesaccruedDividendspayableandinterestaccruedOther30,00066,48227,1939,96323,0036,471163,11217,00059,25122,87611,73918,7725,631135,269DEFERREDANDOTHERCREDITSAccumulateddeferredinvestmenttaxcredits.Accumulateddeferredincometaxes.ContributionsinaidofcoristructionOther9,77912,0355,8595,77033,443$1,475,1044,6249,2064,0565,37923,265$1,282,968'SeeScheduleofCapitalStockandLong-TermDebtonpage20.SeeaccompanyingNotestoFlnanctatStatements.19 SCHEDULEOFCAPITALSTOCKANDLONG-TERMDEBTDecember31,1972ThousandsofDollars$53,0194,17822,8786,30022,2377,763$116,375PREFERENCESTOCK-nopar,cumulative,authorized2,000,000shares$8.00series,outstanding350,000shares.$8.40series,outstanding400,000shares.$8.70series,outstanding400,000shares..F~$35,00040,00040,000$115,000CAPITALSTOCKPREFERREDSTOCK-$100par,cumulative4'/2%authorized629,936shares,outstanding530,189shares..........Series,authorized2,000,000shares3.35%,outstanding41,783shares....4.40%,outstanding228,773shares...4.60%,outstanding63,000shares....8.60%,outstanding222,370shares...9%,outstanding77,630shares.......LONG-TERMDEBTFIRSTMORTGAGEBONDS3%seriesdue1975.2r/a%seriesdue1976................2%%seriesdue1977.....,.....,...3t/a%seriesdue19782s/4%seriesdue1980................3a/a%seriesdue19823t/a%seriesdue1983...............,3'/a%seriesdue1985................4a/a%seriesdue1991................4a/a%seriesdue1994.......'.........5a/a%seriesdue1996................6a/a%seriesdue1997................7%seriesdue19998'/a%seriesdue1999................9%seriesdue20007t/4%seriesdue2001................7a/a%seriesdue2002................/$93,0008,00020,0003,00037,0007,50025,00025,00030,00030,00030,00030,00040,00040,00050,00060,00075,000603,500COMMONSTOCK-nopar,authorized30,000,000shares,outstanding19,051,255shares$278,484NOTES6t/a%maturingin1973-toberefinanced6t/4-8t/4%maturingin1974and1976..OTHER.10,0002'i,35031,350194$635,044.SECURITIESSOLDIN1971AND1972issued1971FebruaryMarch-JuneJulyNovemberSecurityFirstMortgageBonds,7't/4%Seriesdue2001...Notes,6i/4-7t/to%maturingin1974and1976....PreferenceStock,$8.70Series.CommonStock.Shares400,0001,600,000Amount$60,00010,45040,00037,120$147,5701972FebruaryFebruary-MarchJulyOctoberFirstMortgageBonds,7a/a%Seriesdue2002Notes,6i/4-6i/2%maturingin1974and1976PreferenceStock,$8.00Series.CommonStock.350,0002,000,000$75,0008,30035,00046,940$165,240SooaccompanyingNotestoFinancialStatements.20 SOURCESOFFUNDSUSEDFORNEWCONSTRUCTION1972197119701969ThousandsofDollars1968OPERATIONSNetincome(a).LesscashdividendsCurrentearningsreinvestedinbusiness..Depreciation.Deferredextraordinarypowercosts........Deferredincometaxesandinvestmenttaxcredits-net357,92143,33014,59141,4462207,98464,24148,57236,74611,82634,903220J1,127)45,82234,93529.4565,47932,173(2,105)~1.762)33,78534,60925,0979,51228,981338,49633,82024,1739,64726,272~846)35,073OUTSIDEFINANCINGSalesofsecuritiesCommonstock.PreferredstockPreferencestockFirstmortgagebondsLong-termnotesOtherlong-termdebtSecuritiesretiredFirstmortgagebondsLong-termnotes.Otherlong-termdebtShort-termdebt-netincrease(decrease).35,00075,0008,3004240,00060,00010,45056('i5,000)(10,000)(57)20,231160,456(8,000)(117)~21,627117,88246,94037,12028,09330,00040,00050,0002,60087(7,763)(1,000)(236)~4,122)137,65924,05080,00054(3,500)(140)8,050108,514(2,500)(238)63,10060,362OTHERSOURCESAND(USES)InvestmentsRefundofprioryears.Federalincometaxes-netWorkingcapital-netchange(excludingshort-termdebt)Miscellaneous-net24(253)4,5301,4721,1162,956(6,624)(b)23,896(b)(14,824)(13,652)1,2356575,0521,036203174~5,94326,695(6,302)~11,9772,525TOTALFUNDSUSEDFORNEWCONSTRUCTION(a).$218,754192,399165,142135,03397,960(a)Includesallowanceforfundsusedduringconstruction.(b)ThonotchangesInworkingcapitalresultedprincipallyfromthofollowing:1972,IncreasesInaccountsreceivabloandfuolInventory;1971,decreasesinspecialdepositsandaccountsreceivable.SeeaccompanyingNotestoFinancialStatements.21 STATEMENTOFEARNINGSREINVESTEDINBUSINESS19721971BALANCE,JANUARY1NETINCOME.ThousandsofDollars$125,647$113,82157,82148,572183,558162,393DIVIDENDSPreferredandpreferencestock.Commonstock(pershare-1972,$1.64;1971,$1.60)BALANCE,DECEMBER31,(Notes4and5)14,52628,80443,330$140,23811,39225,35436,746$125,647NOTESTOFINANCIALSTATEMENTSDecember31,1972and19711.SUMMARYOFACCOUNTINGPOLICIESAccountingSystemAccountingrecordsaremaintainedinconformitywiththeuniformsystemofaccountsprescribedbytheFederalPowerCommissionandadoptedbythePennsylvaniaPublicUtilityCommission.UtilityPlantCostofadditionstoutilityplantandreplacementsofunitsofpropertyarecapitalized.Costsofde-preciablepropertyretiredorreplacedareelimi-natedfromutilityplantaccountsandsuchcosts,plusremovalcost,lesssalvage,arechargedtoaccumulateddepreciation.CostsoflandretiredorsoldareeliminatedfromutilityplantaccountsandanygainsorlossesarereflectedontheStatementofIncomeduringthecurrentyear.Allexpendituresformaintenanceandrepairsofpropertyandthecostofreplacementofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.AllowanceforFundsusedDuringConstructionAsprovidedintheuniformsystemofaccounts,thenetcostoffunds(interestonborrowedmoneyandareasonablerateonothercapital)usedtofinanceconstructionworkinprogressiscapital-ized.Anamountequaltotheamountsocapital-izedisshownontheStatementofIncomeasanitemofOtherIncomeandservestooffsettheactualnetcostoffinancingconstructionworkinprogress.DepreciationForfinancialstatementpurposes,depreciationiscomputedusingthestraight-linemethodap-pliedonagroupplantoaccumulateanamountequaltothecostofutilityplant,lessnetsalvage,overtheestimatedusefullivesofproperty.SubsidiariesThecostoftheCompany'sinvestmentinsubsidi-ariesandotheraffiliatedcompaniesisshownunderInvestmentsontheBalanceSheet.InterestanddividendsreceivedontheseinvestmentsarereflectedasOtherIncomeontheStatementofIncome.Theassets,revenues,andearningsofsubsidiariesarenotsignificantinrelationtothoseoftheCompany.IncomeTaxesProvisionsforcurrenttaxespayablearesetforthseparatelyintheStatementofIncome.Taxre-ductionsarisingfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddif-ferentlyfortaxcomputationthanforbookpur-posesareaccountedforundertheflow-throughmethod.Thesereductionsinincometaxprovi-sionsaretakenintoaccountinratedetermina-tionsbyregulatoryauthoritiesandcurrentlyresultinlowerratesforcustomersthanwouldother-wisebepossible.Deferredtaxaccountingisfollowedinconnec-tionwiththeadditionalincometaxreductionsrelatedtoacceleratedamortizationofcertified22 defensefacilitiesandpollutioncontrolequip-ment,useoftheclasslifedepreciationsystemand,beginningin1972,deductionofcostsofremovingretireddepreciableproperty.Investmenttaxcreditsaredeferred.DeferredamountspertainingtotheJobDevelopmentIn-vestmentCredit(RevenueActof1971)arebeingamortizedovertheaveragelivesoftherelatedpropertywhileamountspertainingtothecreditspermittedunderpriorlawsarebeingamortizedover5-yearperiods.RetirementPlanTheCompanyhasaRetirementPlancoveringsubstantiallyallemployees.ContributionsaremadebybothemployeesandtheCompany,butthefullcostofpastserviceandPlanimprove-mentsisbornebytheCompany.Pensioncostsarefundedcurrentlyandincludeamortizationofpastservicecostsoverperiodsofnotmorethan20years.ResearchandDevelopmentResearchanddevelopmentcostsarechargedtoexpenseasincurredexceptforcostsre-latedtospecificconstructionprojectswhicharecapitalized.2.SALEOFFIRSTMORTGAGEBONDSOnJanuary8,1973theCompanysold$80millionofFirstMortgageBonds,due2003.Theproceedswereusedforgeneralcorporatepurposesin-cludingtheretirementofaportionofshort-termdebtincurred(a)toprovideinterimfinancingforconstructionexpendituresand(b)torepay$25millionoflong-termdebtwhichmaturedDecem-ber1,1972.3.STORMDAMAGEDuringJune1972severefloodingcausedbyTropicalStormAgnesoccurredintheCompany'sservicearea.Effectsofthefloodincreasedoper-atingexpensesbyapproximately$1.6million(10centspershare)aftergivingeffecttoinsur-ancerecoveries,casualtyreservesandrelatedtaxreductions.4.DIVIDENDRESTRICTIONSTheCompany'scharterandmortgageindenturesrestrictthepaymentofcashdividendsonCom-monStockundercertainconditions.Underthecharterprovisions,whicharepresentlythemorelimiting,norestrictionsareeffectiveonthepay-mentofsuchdividendsoutofcurrentearnings.Theamountofearningsreinvestedinbusiness.freeofrestrictionsunderthecharteratDecem-ber31,1972,aftergivingeffecttothesaleof$80millionofFirstMortgageBondsinJanuary1973,was$103.3million5.PROPERTIESSUBJECTTOFEDERALLICENSESTheCompanyoperatestwohydroelectricproj-ectsunderlicensesissuedbytheFederalPowerCommission(FPC).CertainreservesrequiredtobeprovidedundertheFederalPowerActhavenotbeenrecordedpendingapprovaloftheamountsthereofbytheFPC.TheCompanyestimatesthatsuchreservesapplicabletotheyearsfrom1946wouldnotexceed$2.3millionatDecember31,1972.6.INCOMETAXESTheexcessoftotaltaxdepreciationoverbookdepreciationresultedinlowerprovisionsforcur-renttaxespayableof$7.7millionin1972and$7.0millionin1971.7.RETIREMENTPLANTheRetirementPlanwasamendedJuly1,1971andApril1,1972toprovideforincreasedbene-fitsandasofJuly1,1971certainofthePlan'sactuarialassumptionswerechanged.AtJune30,1972,includingthesechanges,theactuariallycomputedunfundedpastservicecostwasabout$15millionandvestedbenefitsexceededtheas-setsofthefundbyabout$10million.Pensioncostswere$6.7millionin1972and$4.9millionin1971,includingineachperiodfundingofthe,pastservicecost.8.COMMITMENTSANDCONTINGENTLIABILITIESTheCompany'sconstructionprogramisesti-matedtorequireexpendituresofabout$225mil-lionfortheyear1973.Inconnectionwithprovidingforitsfuturebi-tuminouscoalsupply,theCompanyplanstoguaranteethecapitalobligationsofcertaincoalsuppliers(includingfourownedorcontrolledcoalcompanies)uptoacurrentlyestimated$90millionoutstandingatanyonetime.Obligationsactuallyguaranteedunderthesearrangementsaggregated$63.0millionatDecember31,1972.Referenceismadetopages6and7ofthisreportforinformationconcerningpossibleadverseef-fectsofenvironmentalregulationsontheCom-pany'soperations.23 PRINCIPALOFFICERSBOARDOFDIRECTORSJACKK.BUSBY,PresidentAUSTINGAVIN,ExecutiveVicePresidentROBERTR.FORTUNE,VicePresident,FinancialGEORGEF.VANDERSLICE,ComptrollerCHESTERR.COLLYER,TreasurerDONALDJ.TREGO,AssistantTreasurerBROOKER.HARTMAN,VicePresident,DivisionOperationsCHARLESE.FUQUA,VicePresident,SusquehannaDivisionJACKHANCKEL,VicePresident,HarrisburgDivisionCARLR.MAIO,VicePresident,LehighDivisionJAMESJ.McBREARTY,VicePresident,NortheastDivisionLEONL.NONEMAKER,VicePresident,ConsumerandCommunityA/lairsBRENTSHUNK,VicePresident,LancasterDivisionEMMETM.MOLLOY,VicePresident,HumanResourceandDevelopmentEDWARDM.NAGEL,GeneralCounselandSecretaryCLIFFORDL.ALEXANDER,JR.,Washington,D.C.PartnerolArnold8Porter,CounsellorsatLawJACKK.BUSBY,AllentownPresidentoltheCompanyRALPHR.CRANMER,WilliamsportPresidenlandGeneralManagerolGritPublishingCompanyEDGARL.DESSEN,HazletonPhysician-RadiologistAUSTINGAVIN,AllentownExecutiveVicePresidentoltheCompanyW.DEMINGLEWIS,BethlehemPresidenlolLehighUniversityJOHNA.NOBLE,ScrantonPresidento/Cia/andSimpsonCompanyNORMANROBERTSON,PittsburghSeniorVicePresldenlandChio/EconomistolMellonBank,N.A.JOSEPHT.SIMPSON,HarrisburgChairmano/theBoardotHarscoCorporationM.J.WARNOCK,LancasterChairmano/theBoardolArmstrongCorkCompanyCHARLESH.WATTSII,LewisburgPresidento/BucknellUniversityS.HAYWARDWILLS,Miami,FloridaChairmanoltheBoardandPresidentofGACCorporationFISCALAGENTSSECURITIESLISTEDONEXCHANGESTRANSFERAGENTSFORPREFERRED,PREFERENCEANDCOMMONSTOCKIndustrialValleyBankandTrustCompany634HamlllonStreetAllentown,Pennsylvania-18101IrvingTruslCompanyOnoWallStmotNewYork,NewYork-10015PennsylvaniaPower6LightCompany901HamlllonStreelAllentown,Ponnsylvanla-18101REGISTRARSFORPREFERRED,PREFERENCEANDCOMMONSTOCKThoFirslNationalBankelAllentownSeventh6HamiltonStreetsAllentown,Ponnsylvanla-18101MorganGuarantyTruslCompanyolNewYork23WallStreetNowYork,NewYork-10015DIVIDENDDISBURSINGOFFICEFORPREFERRED,PREFERENCEANDCOMMONST'OCKTreasurerPennsylvaniaPower6LightCompany901HamiltonSlreelAllentown,Pennsylvania-18101NEWYORKSTOCKEXCHANGEFirstMortgageBonds,3%Seriesdue19754Y~%PreferredStock(Code:PPLPRB)4.40%SeriesPreferredStock(Code:PPLPRA)8.60%SeriesPreferredStock(Codo:PPLPRG)PrelerencoStock,$8.00Sorfes(CederPPLPRJ)PmlerenceStock,$8.40Ser!os(Code:PPLPRH)PreterenceStock,$8.70Series(Code:PPLPRI)CommonStock(Code:PPL)PBWSTOCKEXCHANGE4'%referredStock3.35%SoriosProlerredStock4.40%SeriesPmlerredStock4.60%SoriesPreferredStock8.60%SeriesPrelermdslack9%SeriesPreferredStockPreferenceStock,$8.00SeriesPreferenceStock,$8.40SeriesPreferenceStock,$8.70Set/osCommonStock ACCOUNTANT'SOPINIONHASKINS&SELLSCorlitiodPubtlcAccountantsTwoBroedweyNowYork10004TotheShareownersandBoardofDirectorsofPennsylvaniaPower&LfghtCompany:WehaveexaminedthebalancesheetsofPennsylvaniaPower&LightCompanyasofDecember31,1972and1971,therelatedstatementsofIncome,earningsrelnvestedinbusinessandsourcesoffundsusedfornewconstructionfortheyearsthenendedandthescheduleofcapitalstockandlong-termdebtasofDecember31,1972.Ourexamina-tionwasmadeInaccordancewithgenerallyacceptedaudit-ingstandards,andaccordinglyincludedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryInthecircumstances.Inouropinion,suchfinancialstatementsandschedulepresentfairlythefinancialpositionoftheCompanyatDe-cember31,1972and1971andtheresultsofitsoperationsandsourcesoffundsusedfornewconstructionfortheyearsthenended,inconformitywithgenerallyacceptedaccountingprinciplesappliedonaconsistentbasis.HASKINS&SELLSFebruary5,1973InlateSeptember1972,theCompany'sBoardofDirectorsvisitedthenuclearfacilitiesofGeneralElectricCo.inCalifornia.Purposeofthetripwasadetailedfamiliarizationwiththesafety,environmentalandoperatingpatternsofanuclear-fueledgeneratingstation. hPENNSYLVANIAPOWER8LIGHTCOMPANY901HamiltonStreetAllentown,Pa.18101Telephone:AreaCode215821-5151BULKRATEU.S.POSTAGEPAIDAllentown,Pa.PermitNo.104reulnooNeroYcrrorArrk PennsylvaniaPower8LightCompanyAnnualReport3974Wa HIGHLIGHTS1974197318,865384,81451,0662.641.68EnergySales-millionsofkwh........18,963Revenues-thousands...............$472,036EarningsApplicabletoCommonStock-thousands(a).$63,661EarningsPerShare-basedonaveragenumberofsharesoutstanding(a)...........$2.88,DividendsPerShare.................$1.77ReportedMarketPriceperShareofCommonStockHigh$2326Low$1319NetUtilityPlant-thousands..........$1,744,9011,534,154(a)ReflectsretroactiveapplfcatloncfchangeInaccountingforfuelcosts.197217,013345,792197115,685300,707197014,683255,31343,16138,48830,2522.461.642.451.602.091.602726'/427'le227421Vs20'ls1,361,4131,183,7961,026,315PennsylvaniaPower&LightCompanyisanelectricutilityprovidingservicetomorethan900,000homesandbusi-nessesovera10,000-square-mileareaIn29countiesofcentraleasternPennsylvania.PrincipalcitiesInthePP8LserviceareaareAllentown,Bethlehem,Harrisburg,Hazleton,Lancaster,Scranton,WllliamsportandWilkes-Barre.ContentsTheYearinReviewManagementAnalysisFinancialsNotestoFinancialStatementsStockPricesDirectorsandPrincipalOfficers3-910-1112-1818-222324CoverPhotos:ManypeoplewithmanydifferentskillsareneededtokeepautilitylikePP&Lrunningefficiently.Fromtop:workmenlowerturbinerotorbladesintoUnitThreeatMartinsCreekplant;answeringoneofthemorethan891,000customercallstotheCompanyin1974;transmissionconstructionworkerslaborhighupona500,000-volttowerwhichwillbecomeanintegralpartoftheCompany's3,000-miletransmissionsystem;naturalist-directoroftheMontourPreserveneartheCompany'sMontourgeneratingstationconductsanaturestudyprogramforareaschoolchildren. ToOurShareowners:toprovideymw'heelectricserv:"youwant.Becausethereisnothingmoreimportantthisyear,inouropinion,thanestablishinganeffectivenationalenergyprogram,thisletterfocusesonlyonthissubject.ThetextofthereportreviewsourPPBLyearwhich,allthingsconsidered,wentwell-in-cludingthefactthatPP&Lcontinuestohaveamplesuppliesofelectricpowertomeetallcustomerneeds.Fromanoverallenergystandpoint,1974wasatoughyear.Itbeganandendedwithoutanyrealdeterminationofanationalenergyprogram.Theoilembargo,thecoalstrike,andthedrasticcurtail-mentsofnaturalgassupplywereallforciblere-mindersofthedifficultiesthatcanaffectourthreebasicfossilfuels.Continuinghighinflation,plushugeincreasesincostsofoilandcoal,understandablyprecipitatedconsumerangerandprotest.Thenaturalresponseofconsumershasbeentopressuregovernmenttorequirethatutilitiesholdthelineonprices.Inmanycases,actionwastakentopostpone,minimizeordenyrateincreases.Investorsinutilitysecuritiesbecameconcerned.Wouldadequateearningsbeallowed'7Wouldthequalityratingofdebtsecuritiesbedown-graded'Wouldnecessaryrateincreasesbewithheld'7Wouldtheinvestorbecomethevictimofacost/pricesqueeze?Reassuringanswerswerefewandfarbetween.Theutilityindustrygenerallysufferedasharpde-clineininvestorconfidence.Somesecuritysaleswerepostponed.Themoneycrunchwason.Add-ingtothefinancialproblemwasthelower-than-expectedgrowthinrevenuesbecauseoflowergrowthinelectricusage.Formostutilitycompanies,thenear-termsitua-tionleftnochoicebuttomakemajorcutbacksinconstruction,particularlyinplannedadditionstogeneratingcapacity.Inthenextseveralyears,thecumulativeeffectofthesecancellationsandde-ferralsofcoalandnuclearpowerplantswillmeanareductionofapproximately60millionkilowattsinelectricgeneratingcapacity.Thereductioniscompatiblewiththecurrentwis-domthatprojectselectricloadgrowthatratesoffive/sixpercentperyearinsteadofthepastpatternofseven/eightpercent.Buttheserevisedloadprojectionsmayprovetobeinerror,onthelowside,intheeventthatlargethrow-overdemandsformoreelectricityarisefromshortagesofotherfuels.Acceptingthelowerloadgrowthprojectionsasreal,thecutbackscouldmeanalostopportunitytoreducethenation'sdependencyonoilandnaturalgasasfuelsforelectricgeneration.Presently,oilandgasareusedtogenerateabout35percentofthenation'selectricenergy.Thisfigurewouldbereducedtoabout10percentby1985ifadditionalcoalandnuclearcapacitywereinstalledasorigi-nallyplanned.NowonderLlewellynKing,ofWeeklyEnergyReport,haseditorializedthat1974islikelytobelookedbackatastheyearwhenthenationtookthewrongturninenergy.Acriticalfactoristheleadtimesthathavetobedealtwith.Newdeepcoalminestakefiveorsixyearstogetuptofullproduction.Thetimespantodevelopnewoilfields,relatedtransportandre-fineriesisevenlonger.Newpowerplantsandcon-nectingtransmissionlinesrequireeighttotenyearstobebuilt.Theseleadtimerequirementsincombinationwithnon-starts,delaysandcancellationsofenergysupplyprojectsmean,inourjudgement,thatarealhazardexiststhatthenationcouldreachtheendofitsenergyropebytheearly1980sorbefore. Whatitcomesdowntoisthatthethingsthatcanbedonetoimproveenergysuppliesinthe1980smustbeundertakennow.Nolopsidedviewpointisintendedorrecom-mended.Commitmenttoresearchmustbecon-tinuedandexpanded.Andthefocusonenergyconservationmustbeintensifieduntilconservationbecomesanacceptednationalethic.Unfortunately,itisprobablyunrealistictoexpectthattherateofchangeinresearchorconservation,orthetwotogether,canmovefastenoughtopro-tectthenationfromtheenergybindthatcouldmaterializewithinthenextdecade.Thenear-termrisksareveryhigh.Recentindus-trialplantshutdownsduetoshortagesofnaturalgasandtheprolongedBritishcoalstrikeof1972havebothprovidedbitterforetastesofwhathap-penstopeoplewhenbasicenergyisinshortsupply.Byspeakingouttoday,weseektoavertthetragicconsequencesofadeficientelectricpowersupplyafewyearshence.Weurgepromptactioninfourbasicareas:~Foroilandnaturalgas-accelerateoff-shoredevelopmentofnewsupplies.~Forcoal-moderatesulfurcontentrestrictionsforfive/tenyears.Suchactionshould(1)en-couragedevelopmentofnewcoalminesintheeasternandmidwestregionsoftheUnitedStates,(2)lessenthecost/priceincreaseburdenthathasbeencreatedbytheheight-eneddemandforcoalthatis"low"insulfurcontent,and(3)provideadditionaltimetode-veloppracticalmethodsofexcesssulfurre-movalatreasonablecost.~Forsuppliesofelectricityadequatetoprotectthenationalinterest-adoptregulatorypoli-ciesandincentivesforinvestorsthatwillenableutilitycompaniestoreactivateconstruc-tionofthenuclearandcoalpowerplantsthathavebeencancelledanddeferred.~Forrailtransportation-providethegovern-mentalfundingnecessarytorehabilitateandexpandessentialrailroadfacilitiesthrougharailwaytrustfundorothermeans.Thepres-entscenarioof"freightembargonextweek"isintolerable.Formuchofthenation,sever-anceofrailroadserviceterminatessuppliesofcoalandotherfuels.Thealmostendlessprocessofdiscussion,de-bates,studiesandre-studieshasbecomethecruxofthenation'senergyproblem.Theresourcesandtheskillstodothejobareavailable.Whatappearstobelackingisthewilltobreaksomeeggsandmaketheomelet.Toputthematterbluntly,thereseemstobetoomuchconcernthatsomeonewillmakesomeextradollarsasapartofprovidingtheadditionalenergysuppliesthatourcountryde-pendsuponforsurvival.Sometimesoverlookedisthefactthatreinvestmentofprofitscanbeanim-portantsourceoffundsforfinancingdevelopmentofadditionalenergysupplies.Iftherearewindfallprofits,thetaxcollectorcantakecareofthem.Oursocietycancopewithhumanproblemsaris-ingfrominadequateincome,includinginabilitytopurchasebasicenergyrequirements-ifwehaveenergyavailable.Withoutadequateenergy,oursocietywillnothavetheproductivecapabilitynec-essarytomeethumanneeds.Whatwecannotaffordisanotheryearoflessthanall-outactivitytorebuildandrestructureournationalenergybase.Thethingtodoistogetonwiththejob.Inthisnationwecanovercometheenergyproblem.Whatittakesisallofusworkingatittogether.InPP&Lwewilldoourbesttodoourpart.Respectfullysubmitted,March3,1975JackK.Busby,President THEYEARINREVIEWEarningsfor1974were$2.88pershareofcommonstock,up24centsor9.1percentfromthe$2.64earnedin1973.Bothyearsreflectachangein1974inthemethodofaccountingforfuelcostsrecoverablefromcustomersthroughtheoperationofafueladjustmentclauseonelectricbills.Ourcurrentmethodofaccountingforfuelcostseliminatestheaveragethree-monthlagbetweenthetimewerecordedthecostoffuelburnedandthetimewerecordedtherecoveryofthecostthroughcustomerbillings.Withoutthechangeinaccounting,ourearningswouldhavebeen$2.31persharefortheyearcomparedto$2.57for1973.MetropolitanEdisonCo.Thisresultedinanoverallsalesincreaseof.5percentover1973.Whentheseusagefiguresarecomparedtoanaverageoverallgrowthrateofaboutninepercentovertheprevious10yearsitisevidentthattherewasasubstantialcutbackinelectricusebyjustabouteveryclassofcustomer.Withthedownturnintheeconomyandthecontinuingeffectivenessofourcustomers'nergyconservationmeasures,thelong-rangeforecastofelectricusehasbeenreviseddownward.Butwestillrecognizethepossibilityofpeopleusingmoreelectricenergybecauseofshortagesofnaturalgasandtheuncertaintyoftheoilmarket.DividendRaisedTheboardofdirectorsonMay22raisedthequarterlydividendrateonPP&Lcommonstockfrom42to45centsashare.Theincreasebringstheannualdividendrateupto$1.80pershare.Thisisthepointwherewewouldhavebeenifearningsproblemshadnotforcedustosuspenddividendincreasesin1970and1971afterfollowingapatternofmodestannualincreasesoffourcentsasharesincetheearly'60s.SmallerGrowthRateTheenergycrisis,energyconservationeffortsbyourcustomersandthestateoftheeconomycombinedtoholddowntherateofgrowthinkilowatt-hourusage.Traditionally,weexperiencedgrowthinkilowatt-houruseprincipallybecausecustomersusedmorepowerthantheyhadtheyearbefore.1974wasdifferent.Overallresidentialusagewentuponly2.7percent,comparedtoanaverageincreaseof9.7percentinrecentyears.Commercialcustomersused.3percentmoreandindustrialusagewasup4.2percent.TheindustrialfiguresincludetheadditiononJuly1oftheSteeltonplantofBethlehemSteeltooursystem.Theplantused366millionkilowatt-hoursduring1974,about5.1percentoftheindustrialtotalfortheyear.Otherenergysalesweredownabout27percent,primarilybecauseofreducedcontractualsalestoRevenuesUpRevenuesfor1974were$472million,up22.7percentover1973.Mostoftheincreasecamefromrecoveryofrisingcoalcostswhichwerebilledtocustomersthroughthefueladjustmentclauseexplainedlaterinthisreport,andfromthe5.7percentrateincreasewhichbecameeffectiveJan.10,1974.CoalCostsSkyrocketThecostoffuelburnedduring1974amountedto$219millioncomparedto$126millionin1973.However,in1974theCompanychangedthemethodofaccountingforfueltoachieveamatchingoffuelexpenseandrelatedcustomerrevenuesbyaccountingperiods.Thisaccountingchangeresultedinrecordingonly$192millionasfuelexpensefortheyear1974.Attheendof1974wewerepaying$25atonatthemineforbituminouscoalontheopenmarketversus$12atonattheendof1973.WorkStoppageAstrikecalledbytheEmployeesIndependentAssociation(EIA)onMay20,1974idledabout5,000unionmembers.TheactionwasthefirstgeneralstrikeintheCompany'shistory.ItendedwiththeemployeesreturningtoworkonAug.9,1974. ExtraexpensesincurredbytheCompanyasaresultofthestrikecost$2millionaftertaxes.Anewtwo-yearcontracttorunthroughJuly24,1976providesforimprovementsinfringebenefitsandforwageincreasesof8.5percentthefirstyearand8percentthesecondyear.Reductionsinemployeecontributionstobenefitplansandotherbenefitimprove-mentsaddanother4.2percentoverthetwoyears.ConstructionBudgetat$2.1BillionPP&L'sconstructionbudgetforthenextfiveyearsisnearly$2.1billion.For1975aloneit's$340million.ThismeanswewillbespendingmoreinthenextfiveyearsthanhasbeeninvestedinourCompanysinceitwasfoundedin1920.SusquehannaProjectMorethanhalfofthefive-yearconstructionbudget,$1.2billion,willbeusedforconstructionoftheCompany'sfirstnuclearpowerplantnearBerwick.Constructionofthefirstofthetwin1,050,000-kilowattboilingwaterreactorgeneratingunits,nowscheduledforoperationin1980,progressedonscheduleandatyear-endwasabouteightpercentcomplete.Unit2constructionwasaboutsixpercentcomplete.Longermaterialdeliverytimes,laborshortages,work.stoppagesanddesignchangescanallcreatedelaysingettingnuclearplantsontheline.OnewayPP&Lhaschosentosavetimeandexpenseistoadoptthe"big-piece"constructionconceptatSusquehannaSteamElectricStation.Thebig-piececonstructionconceptinvolveson-siteconstructionoflargepartsofthereactorpressurevesselandcontainmentliner,simultaneouswithfloor-by-floorcompletionofthereactorbuilding.Thiscontrastswithlaborioussequentialfabricationofeachsystem,withitsattendanthighcosts,delaysandkeyelementspiledupinassemblyareasawaitingtheirturntobeworkedupon.Incomparisonwithsequentialconstruction,thebig-pieceprocedurebeingusedatSusquehannapromisestosavesubstantialsumsofmoney.9~f'I//l~flIPartofthesteelreactorcontainmentlinerweighingmorethan200tonswasinchedintoplaceinearlyOctober1974forthefirstoftwin1,050,000-kwnucleargeneratingunitsatPP&L'sSusquehannaplantunderconstructionnearBorwick.Placedonabasematofconcretereinforcedwithabout100tonsofsteelbars,thoquarter-inchsteelofthevesselwillreceiveasix-foot-thickmantelofreinforcedconcreteasshieldingforthereactorwithintholiner.Theuniquecranepicturedhasa350-footreachwithaliftingcapacityof280tons-enoughtoliftafully-loaded747letplane. MartinsCreekProjectMeanwhile,anotherlargegeneratingunitisnearingcompletionatourMartinsCreekplantnorthofEaston.Thefirstoftwo800,000-kilowattcrudeorresidualoil-firedunitsisexpectedtocomeonthelineinthespringof1975.Theotherunitisscheduledforoperationearlyin1977.Someofthefactorsinfluencingthedecisionbackin1968and1969tobuildoil-firedunitsatMartinsCreekwere:~Thedesirabilityofadiversifiedfuelmixamongcoal,oilandnuclear.~Thespecialoperatingcharacteristicsoftheoilunitswhichwouldallowustopickuploadordropitquicklytomeetfluctuatingdemandandenableustousetheunitsinplaceofsmaller,expensive-to-operatecombustionturbinegenerators.~Studiesin1969indicatedthatthepriceoflow-sulfurcoalwouldrisefasterthanoilandplentyofoilwouldbeavailable.Unfortunately,conditionsintheMiddleEasthavechangedallthat.~Strictenvironmentalstandardsthenonthehorizonmadecoalappeartobeanunwisechoicebecauseitmeantburningexpensivelow-sulfurcoalorinstallingequipmentthatwouldremovesulfurgasesandparticulate.Thereliabilityofsulfur-dioxideremovaltechnologywasnotandstillisn'fullyproven.Ifwehadtomakethedecisiontodayitwouldbedifferent,buttheconditionsaffectingourdecisiondidn'changeuntilwewerewellbeyondthepointofturn-aroundinourconstruction.Conversiontocoalisvirtuallyoutofthequestionbecausethecostwouldexceed$400million.WiththeoperationofthefirstbigoilunitatMartinsCreekabouttobegin,constructionofthe82-milepipelinethatwastohavebeenthedeliverysystemfortheoilhasnotyetbeenstarted.Theproblemisthat,althoughPUCapprovalwasobtainedinFebruary1973,opponentsoftheprojecthavechallengedconstructionofthepipelineinthecourtsandbeforeadministrativeagencies.Seeingthisproblemdeveloping,theCompanyhadtobegina$2.3millionprojectforalternateemergencyrail-unloadingfacilitiestoinsureoildeliveryuntilthepipelineiscompleted.TheCompanyhasleasedthree50-carunitoiltrainsatanannualcostof$527,000tocarrytheoilfromPhiladelphiatoMartinsCreekuntilthepipelinecantakeoverthisoperation.Constructionofthepipelinewilltakeaboutninemonths.Atthispointwejustdon'tknowwhenthatconstructionwillbegin.OilisunloadedfromrailroadtankcarsatMarlinsCreekinpreparationforstart-upandtestingofUnit3earlyin1975.Thetemporaryemergencyunloadingfacilitiesweremadenecessarybecauseconstructionofthepipelinewhichwastohavebeentheoildeliverysystemfortheplanthasbeenchal-lengedinthecourtsandbeforeadministrativeagencies,FFA' AtankfarmhasbeenbuiltatMartinsCreekbyInterstateEnergyCo.and1.2millionbarrelsofcrudeoilarestoredforinitialoperationofthefirstoilunitontheCompany'ssystem.CoalIsStillKingDespitePP8L'sdiversificationintooilandnucleargeneratingunits,coal,atthispoint,isstillourmajorfuel.During1974about96percentoftheCompany'senergygenerationcamefromcoal.Throughownershiporcontroloffiveoperatingminesinwest-centralPennsylvaniatheCompanyisassuredofover100milliontonsofcoalreserves-enoughtoprovideastablesupplyformanyyearstocome.Earlyin1974,PP8Lformedanothercoalcompanywhichacquiredanother114milliontonsofreservesinthePittsburghcoalseaminsouthwesternPennsylvania.Additionally,inMarch1974theCompanyagreedtoacquirealltheinterestofManorRealEstateCo.inaportionofthePittsburghseamadjacenttotheprioracquisition.Thislatestacquisitioniscontingentondrillingtests,scheduledforcompletioninmid-March1975,toconfirmthatatleast150milliontonsofcoalexist"inplace"intheseam.Basedonpresentminingpracticeandtechnology,theCompanybelievesthatabout50percentofthein-placecoalwouldberecoverable,givingusanother75milliontonsofreserves.Besidesowningorcontrollingthesourceformuchofitscoal,PP8Lalsohasmorethanhalfofthecoalitusesdeliveredinitsownunittrains.Eachtraininthefleethasatleast105carsandcarriesmorethan10,000tonsofcoaleachtripfromminetopowerplant.Theseventhunittrainjoinedthefleetinlate'74.Theeighthisexpectedlaterin1975.Economiesresultingfromcontrolledcoalsourcesandtheunittrainsresultedinsavingsforourcustomersofatleast$20millionin1974.Asaninterestingsidelight,ElectricalWorld,oneoftheleadingtrademagazinesoftheelectricutilityindustry,recentlypublishedaneditorialtitled,"Wecandependoncoal...orcanwe?"Itdiscussedtheutilities'ncreasingdependenceoncoalandtheproblemsthatwouldinevitablyariseintheminingandtransportofvastnewamountsofcoal.Itconcludes:"Westronglyrecommend,therefore,thatutilitieslookveryseriouslyintotheacquisitionofcoaldeposits,andintoownershipofhoppercarssufficienttoensureatleastminimumacceptablesupply."TheCompanyfeelsthatitsexperienceandstatisticswouldsupportElectricalWorld'srecommendation.Thiscertainlydoesn'tmean,though,thatPP8Lisimmunetotheeconomicfactorsthatarepushingenergypricesupsosharply.Evenwiththeefficiencieswehave,thepriceofdeliveredcoalalmostdoubledin1974.Unfortunately,thishasresultedinhighercustomerchargesthroughthefueladjustmentclause.,'~~i~f+yP",,+~WN-ta.'I.s~.If~lIHAJJQri,~.~II*f.pSCoalisloadedintooneofPP&L'sseven10,000-tonunittrainsattheCompany'sGreenwichmineinwestcentralPennsylvania.Throughownershiporcontrolottiveminesandtheuseofitstleetofunittrainstohaulmorethanhaltthecoalweusedlastyear,PP&Lsaveditscus-tomersatleast$20millionin1974. Thefueladjustmentclauseauthorizesutilitiestopassontocustomerstheincreasesordecreasesinfuelcosts.ItaddsnothingtoPP8LprofitsbutallowstheCompanytorecovermostofitsincreasingcostsfromsharplyrisingfuelprices.Risingcoalcostsincreasedthefueladjustmentchargetoourcustomersbyabouthalf-a-centperkilowatt-hourin1974.FinancingTheeffectsofinflationwerefeltsharplyinthepricePP&Lhadtopaytoraisecapitalin1974.WhentheCompanytalksaboutthehundredsofmillionsofdollarsneededeachyeartobuildnewfacilitieswemustalsolookatwherethemoneycomesfrom.Onlyaboutone-fourthofthefundsweneedtofinanceourconstructioncanbegeneratedinternallyfromCompanyoperations.TherestmustcomefromnewcapitalinvestmentintheCompany.During1974weraised$240millionthroughoutsidefinancing.Wesold$35millionofcommonstockand$25millionofpreferencestockalongwithtwoissuesoffirstmortgagebondstotaling$180million.Thefirstissueofbonds($80million)wassoldat9'/4percentinterest,thesecond($100million)at10'/epercent.Thepreferencestockwassoldatadividendcostof13percent.During1975weexpecttoissue$350millionofnewsecurities.Ofthatfigure$93millionwillbeneededtorefundmaturingdebt.ConstructionCutbackProbablyPP8L'smostmomentousdecisionduring1974cameinearlyAugust,whentheCompanydecidedtocutbackconstructionexpendituresby$1.3billionforthe10-yearperiod1974through1983andtoadoptaCompany-wideprogramofgeneralausterity.Thecutbackwasmadenecessarybyrapidlychangingeconomic,socialandpoliticalconditionsregionallyandnationally.Theconditions,asweseethem,are:~Aslowdowninboththenationalandtheregionaleconomywithnoquickturn-aroundexpected.Slowereconomicgrowth,infact,maywellbecomealong-termtrend.~Amajor"break"inthelongandsteadypatternofrisinguseofelectricitywithcustomerresistancetohigherprices,conservationandslowereconomicgrowthallcontributingfactors.~Unfavorablefinancialconditions,includingdouble-digitinterestratesandimpairmentofinvestorconfidenceinutilitysecurities,nowlimitingtheamountoffinancingourindustrycanundertake.~Ageneralworseningofthepoliticalandregulatoryclimatewithrespecttoutilityrateincreasesandexpansionprograms.Withthesechangingcircumstancesinmind,arevisedforecastofelectricdemandthrough1984indicatesthatgeneratingcapacityneededtoservecustomers10yearsfromnowmaybenearlytwomillionkilowattslessthanearlierestimates.Thiswillgreatlyaffectthelong-rangegeneratingplantconstructionschedule.Thetwooil-firedunitsatMartinsCreekwillcomeonlineasscheduledin1975and1977.Thenuclearunitshavebeendelayedoneyeareach.andwillcomeonlinein1980and1982.Thesixgeneratingunitsplannedforthemidtolate'80shavebeencutbacktotwounitsinthelate'80s.Foratimeatleast,thesecutbackscanberestoredifconditionsbegintochangedramaticallyfromourforecasts.Eventhoughtheforecastedgrowthrateshavebeenloweredsignificantly,theyarestillexpectedtobesizable-anaveragesixpercentayearthrough1985.Admittedly,however,weliveinatimewhenthepredictabilityoftheeconomic/socialeventsthataffectelectricalusehasbecomeparticularlyuncertain.Wewillbegivingextraattentiontoearlydetectionofindicatorsthatpointtotheneedforchangesinourpeakloadforecast.CuttingCostsInevitably,alessergrowthinvolumeofbusinessleadstoreductionsinpreviouslyexpectedmanpowerneedsforconstruction,operationandmaintenance.,Bytheendof1974,82employeeswithlessthansixmonths'ervice,primarilyintheconstructionarea,hadbeenlaidoff.Thelayoffs,togetherwithconstraintinfillingvacanciescreatedbynormalturnoverhasresultedinmanpowerreductions,bytheendoftheyear,of311employees,or4.3percentofthehighfortheyear.Additionally,eliminationorcutbackofworkperformed byoutsidecontractorshashadtheeffectofeliminatingtheworkofanother161people.WhenthisisaddedtothePP8Lworkforcereductionthetotalcomesto472-oradropofslightlymorethansixpercent.TheCompanyisalsore-examiningfuelprocurementpractices,outsideworkcontracts,transportationfleetrequirementsandmaterialandsupplyinventories,allseekingwaystoreduceexpenses.Planswerealsobeingfirmedupatyear-endtohaveindependentreviewsmadeofourcoalminingoperationsandoverallPP8Loperatingeffectiveness.But,expenseandmanpowercutbacksarenoteasilycomeby.ThereisreallynowaytosubstantiallycutbackonmanpowerandexpenseswithoutsomeattendantlossinthescopeandqualityofserviceprovidedbytheCompany.OperationUnderstandingTheCompanydependsonpublicunderstandingandsupportforitsverysurvival.ThefactthattheelectricutilityindustryandPP8Lcontinuetofacedifficulttimesisnosecret.OneofthethingstheCompanyisdoingtoseekpublicsupportisa15-month-longprograminwhichourpresidentvisitsandtalkswiththepeopleweserve.TheprogramiscalledOperationUnderstanding.PresidentBusbyhascommitted25percentofhistimefromearlyOctober1974through1975tovisitinginsmallgroupsessionswithnewsmen,serviceclubs,consumeractiongroups,students,businessleaders,publicofficials,employees,minoritygroups,seniorcitizens,women'sorganizations,unionleaders,shareownersandothersthroughoutourservicearea.Withnosetpresentation,hereliesoninformaldiscussion,andquestionandanswersessionstoresponddirectlytothecustomers'eelingsandneeds.Theprogramdoesnottrytobrainwashanyone.Wewanttolistentotheproblemsthatpeoplehaveandwewanttogivethemanopportunitytolistentous.Aspartofearningthepublicsupportthatwedependon,wefeelwemustbeaccessible,openandcredibleinouroperationsandinourbehaviorandagoodperformerinallaspectsofourbusiness.ResearchProbablythemostvisibleresearchprojecttheCompanyengagedinduring1974wasthecompletionofourenergyconservationhomenorthwestofAllentown..lI(~ad%~l~PP8Lhasbeensavingtimeandmoneybyprefabricatingmajorsubstationsectionsindoorsandcompletingassemblyatthesub-stationsite.Withprefabrication,fieldconstructiontimehasdroppedfrom26to20weeks.ThemethodallowsIndoorworkinallkindsofweatherandallworkisdoneatgroundlevelwhichisfasterandsaferthantheon-siterequirementsofusingladdersandbuckettrucks.Estimatedsavingsforeachsub-stationhavebeenapproximately$5,000ormore. Thehomeusesawater-sourceheatpumpforheatingandcooling.Theheatingcycleissupplementedbysolarenergycollectionpanelsandheatreclamationdevicestorecoverwasteheatfromappliances,waste-water,fireplacefluegasesandeventheheatofdecompositionintheseptictank.APP8Lemployeefamilywaschosentoliveinthehomeforayeartohelpprovideactualin-usedataforfurtherevaluationoftheenergyconservationmethodsbeingtested.Theobjectiveintheexperimentalhomeprojectistoexploreanumberofenergyconservationmethodsthathavethepotentialtosignificantlyreducetheelectricaldemandofanelectrically-heatedsingle-familyhome.Aftertheresultsoftheexperimentareavailabletheymustbeevaluatedtodeterminewhichmethodsmightbeeconomicallyfeasiblefortheconsumer.Inotherareas,theCompanyeitherhelpedfundorparticipatedinsuchresearchprojectsassulfurdioxideremovalfromstackemissions,windstressfactorsoncoolingtowers,fastbreederreactor,nuclearfusionandcoalliquefactionandgasification.Additionally,throughElectricPowerResearchInstitute(EPRI)weareinvolvedinanumberofotherprojectstofindnewenergysources,toimprovetheutilizationofpresentenergyresources,andtoimprovethereliabilityandenvironmentalacceptabilityofelectricpowergeneration.DirectorsDr.RuthPatrick,notedbiologistandchairmanoftheBoardofTrusteesoftheAcademyofNaturalSciencesinPhiladelphia,waselectedadirectorinSeptemberfollowinganamendmenttoCompanybylawsincreasingtheauthorizednumberofdirectorsfrom12to13.TheCompanynotedwithregretthedeathsduring1974ofthreeformerdirectors.EverettL.Palmer,whowasvicepresidentofPublicRelationsandservedasadirectorfrom1960untilhisretirementin1966after42yearswiththeCompany,diedonApril25.HarryFerguson,formeroperatingvicepresidentandadirectoratthetimeofhisretirementin1958,after38yearswiththeCompany,diedonJuly29.JohnS.WiseJr.,whowaspresidentandaboardmemberfor17yearsuntilhisretirementin1945after29yearswiththeCompany,diedonAug.13.WisewasapioneerintheelectricutilityindustryandwasinstrumentalintheformationofPP8Lin1920.ForthepastseveralyearsPPftL'sboardofdirectorshasheldatwo-daymeetinginSeptemberenablingmemberstovisitfacilitiesessentialtoCompanyoperations.In1974theboardtouredtheCompany'senergyconservationhomeandthePP<rainingCenternearAllentown,andtheoil-firedunitsbeingbuiltattheMartinsCreekplant.gj',g'j',,IL MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOMEThefollowinganalysisoftheCompany'sfinancialperformanceexplainsthereasonsforchangesinspe-cificitemsontheStatementofIncomecomparingtheyears1974to1973and1973to1972.ElectricrevenuesIncreaseinquantityofsalesto:UltimatecustomersOthersforresale..Rateincreases.......FueladjustmentclausesOther..$7.818.0(1.9)8.222.210.555.4(0.4)1.92.385.438.6Steamheatrevenues..........1.80.4Total$87.239.0RatesapplicabletosalestoultimatecustomersareregulatedbythePennsylvaniaPublicUtilityCommis-sion(PUC)andaccountedfor97%oftheCompany'srevenuefromenergysalesin1974.TheFederalPowerCommission(FPC)regulatessalestoothersforresale.TheCompany'selectricenergysalestoultimatecus-tomersincreased6.5%in1973and2.8%in1974.Mostofthe1974increasewasduetosalestotheSteel-tonPlantofBethlehemSteelCorporationwhichwasaddedasacustomerinmid-year.Thereducedgrowthratein1974wasdueprimarilytoenergyconservationmeasuresbycustomersandageneraldeclineineco-nomicactivity.Electricenergysalestoothersforresaleduringthetwoyearsremainedrelativelyconstantexceptforcon-tractedsalestoaneighboringutility,MetropolitanEdisonCompany(MetEd).SalestoMetEdareunderanagreementtosellcapacityandenergyfortheperiodJunethroughSeptemberineachoftheyears1973,1974and1975fromtheCompany'sgeneratingunitsatMontourandtheNo.3unitatMartinsCreek(scheduledforserviceinApril1975).RevenuesfromMetEdwere$7.9millionin1973and$6.1millionin1974.RateincreasesaffectingultimatecustomersweregrantedinMarch1972($17millionannually),June1973($10millionannually)andJanuary1974($19mil-lionannually,ofwhichabout$17.8millionisincludedOperatingRevenuesTheCompanyderivesabout99%ofitsoperatingrevenuesfromsupplyingelectricserviceandthebal-ancefromsupplyingsteamforheatingandotherpurposes.Thechangeinoperatingrevenuesfromtheprioryearisattributabletothefollowing:Increase(Decrease)19741973MillionsofDollarsinrevenuesfortheyear1974).Since1972therehavebeentworateincreasesaffectingfifteenresalecus-tomersforatotalof$1.6millionannually,withthemostrecentincrease($975,000annually)beinggrantedbytheFPCinSeptember1974,subjecttopossiblerefund.TheaffectedcustomersareopposingtherateincreaseandtheFPChasscheduledahearingforMarch1975.TheCompany'stariffsincludefueladjustmentclauseswhichadjustpricesforelectricserviceforvariationsinthecostoffuelusedtogenerateelec-tricity.Revenuesfromthefueladjustmentclausestotaled$23.8millionin1973and$79.2millionin1974.Increase(decrease)inenergysold...........Increaseinaverageprice.OtherTotal.$(11.0)=-34.049.3l.30.20.3$38.535.6Thequantityofinterchangepowersoldincreasedsubstantiallyduring1973duetotheavailabilityofnewandefficientcoal-firedgeneratingunitsatMontourSteamElectricStationplacedinserviceduring1972and1973.Thequantitysoldduring1974wassome-whatlowerthan1973,butthepricesreceivedforsuchpowerweresubstantiallyhigher.Thepricereceivedforinterchangepowersalesistoagreatmeasurebasedonarelationshipofthefuelcostsofthesellingandbuyingutilities.AlltheCom-pany'smajorgeneratingstationsarefiredbycoalwhileotherinterconnectedutilitieshavesignificantamountsofoil-firedgeneratingcapacity.Fortheperiodbegin-ninginlate1973andcontinuingthrough1974,oilpricesincreasedmuchmorerapidlythancoalpriceswhichcausedanincreaseinthepricereceivedforinterchangedpowerduring1974.Theaveragepricereceivedforinterchangepowersaleswas1.76centsperkwhin1974and0.95centsperkwhin1973.BothamountsweresubstantiallyinexcessoftheCompany'sfuelcostsrelatedtosuchsales.InterchangePowerSalesDuring1974approximately24%oftheoutputoftheCompany'sgeneratingstationswassoldtootherutil-itiesunderinterconnectionarrangements.Thiscom-pareswith28%soldin1973.However,asrequiredbyboththePUCandFPC,suchsalesarenotrecordedasOperatingRevenuesbutarecreditedtoOperatingExpensesontheStatementofIncome.Ananalysisofthechangeininterchangepowersalesfromtheprioryearfollows:Increase(Decrease)19741973MillionsofDollars ElectricfuelexpenseIncrease(decrease)inquantityofelectricitygenerated....Increaseinaveragecostoffuelsburned.............Effectofchangeinaccountingforfuelcosts.............SteamheatfuelexpenseTotal$(0.9)26.392.33.6(26.6)64.829.92.00.5$66.830.4Theincreaseinfuelcostsduring1974wascausedbytheescalatingpricesoffuelsburned(principallycoal).Increasesinfuelexpenserelatedtosalestocustomersarebilledtocustomersthroughfueladjust-mentclauses.Undertheclauses,fuelcostsincurredinamonthinexcessofabaseamountarereflectedincustomers'illsoverasubsequentthree-monthpe-riod.PriortoOctober1974thefuelexpenserecordedbytheCompanyeachmonthwasthecostoffuelburnedto'generateelectricityduringthatmonth.How-ever,duetothesharpriseinthecostoffuelduring1974thisprocedureresultedinpronouncedmis-matchingoffuelcostsandrevenuesbyaccountingperiods.Therefore,theCompanychangeditsaccount-ingtreatmentoffuelcostsrecoverableunderfueladjustmentclausesasdescribedinNote2toFinancialStatements.ThenewaccountingproceduredoesnotaffectthepriceofelectricitychargedcustomersnortheamounttheCompanypaysforfuel.WagesandEmployeeBenefitsandOtherOperatingCostsTheincreasesinwagesandemployeebenefitsandotheroperatingcostssuchasmaterialsandsupplies,rentsandinsurancereflectprincipallytheeffectsofinflation.Athree-monthstrikebyapproximately5,000unionemployees(about70/ooftheCompany'stotalworkforce)increased1974operatingexpensesbyapprox-imately$2.0millionaftergivingeffecttorelatedin-cometaxreductions.Thefinalagreement,whichresultedinanewtwo-yearlaborcontracttorunthroughJuly1976,providesforimprovementsinfringebenefitsandforwageincreasesof8.5/obeginninginAugust1974and8.0'/obeginninginJuly1975.FuelApproximately98'/oofthefuelexpenseshownintheStatementofIncomeisrelatedtogenerationofelectricitywiththebalanceapplicabletotheproduc-tionofsteamforheatingandotherpurposes.Thechangeinfuelexpensefromtheprioryearisattribut-abletothefollowing:Increase(Decrease)19741973MillionsofDollarsDepreciationIncreaseddepreciationexpensesince1972isduetonewfacilitiesplacedinservice,includingtheaddi-tionoftwogeneratingunitsatMontourSteamElectricStation.TaxesForadetailedanalysisofincometaxcomponentsandeffectiveincometaxratesseeNote6toFinancialStatements.Taxesotherthanincomeincreasedpri-marilybecauseofhigherStategrossreceiptstaxeswhicharebasedonrevenuesandincreasedStatecapitalstocktaxresultingprincipallyfromtheaddi-tionalPreferred,PreferenceandCommonStocksoldduringtheperiods.CostofFinancingIncreasesfromtheprioryearininterestcharges,dividendsonPreferredandPreferenceStockandtheamountoftheAllowanceforfundsusedduringcon-structionareasfollows:Increase19741973MillionsofDollars7.94.80.2Allowanceforfundsusedduringconstruction.........$5.80.3InterestchargesLong-termdebt.............6.7Short-termdebt............0.9Other..Dividendsonpreferredandpreferencestock...........2.52.7Theamountoftheallowanceforfundsusedduringconstructionvariesfromyeartoyearinrelationtotheamountofconstructionworkinprogressandthecostofcapital.Theincreaseinlong-termdebtinterestchargesanddividendsonPreferredandPreferenceStockisduetoissuanceofnewsecuritiestofinancetheconstructionofnewfacilitiesandtherefinancingofmaturingdebtwithsecuritiesbearinghigherinterestrates.During1973and1974,newissuesofsecuritiesincluded$308millionoflong-termdebtand$65millionofPreferredandPreferenceStock.Short-termdebtconsistsofbankloansandcommer-cialpapernotesusedtoprovideworkingcapitalandforinterimconstructionfinancing.Interestonsuchdebtvariesfromyeartoyearduetotheamountofshort-termdebtoutstandingandtheinterestratesineffect.Formoreinformationonshort-termdebtseeNote3toFinancialStatements.During1973and1974theCompanysold4.2millionsharesofnewCommonStocktofinanceconstruction.TheaveragenumberofsharesofCommonStockout-standingincreasedfrom17.5millionin1972to22.1millionin1974,anincreaseof26/o.Theincreaseintheaveragenumberofsharesoutstandingdilutedearningspershareby11'/oin1973and14/oin1974. STATIST!GALSUMMARYCAPITALINVESTMENT-thousandsLong-termdebtPreferredandpreferencestock....CommonequityShort-termdebtTotalcapitalinvestment.................RETURNONINVESTMENT(a)Returnonaveragecapitalinvestment-%,.Returnonaveragecommonequity-%....COMMONSTOCKDATABookvalueatyearend(a)...............Dividendpayoutrate-%(a).............Dividendyield-%(b).Priceearningsratio(a)(b)...............NUMBEROFSHAREOWNERS-preferred,preferenceandcommon.......OPERATIONSELECTRICCUSTOMERSENERGYSALES-millionsofkwhResidentialCommercialIndustrialOtherAVERAGEPRICEPERKWHtoultimatecustomers-cents..SOURCESOFENERGYSOLD-millionsofkwhGeneratingunitsCoal-firedOil-fired-combustionturbines8dieselsHydroelectric...........Purchasedpower.InterchangedpowerPurchasesSalesCompanyusesandlosses.....TotalenergysalesFUELCOST-millsperkwh......POWERCAPABILITY-kilowatts..PEAKDEMAND-kilowatts(c)...EMPLOYEES1974$914,349296,375532,6551,743,37985,509$1,828,8888.512.6$22.916211.55.3164,126902,1486,4944,2757,1701,02418,9632.4724,1862477723521,218(6,079)(1,733)18,9638.84,901,0003,772,0006,9301973753,027271,375469,6081,494,01039,8511,533,8617.911.922.51648.47.6142,235886,3786,3244,2626,8811,39818,8652.0624,7822738163841,584(7,237)(1,737)18,8655.04,903,0003,662,0007,1391972635,044231,375412,1301,278,54996,4821,375,0317.511.621.78676.510.3135,399864,4395,9853,9336,45863717,0132.0219,0976018244181,366(3,586)(1,707)17,0134.94,108,0003,598,0006,7901971576,760196,375351,2991,124,43476,2511,200,6857.412.220.78666.410.2123,598843,0805,4793,5336,05362015,6851.9015,8476426843041,467(1,758)(1,501)15,6854.83,496,0003,294,0006,5141970514,371156,375303,117973,86397,8781,071,7417.010.819.75766.811.3111,909828,6435,0933,1985,80768514,6831.7113,7027867393391,732(1,164)(1,45I)14,6834.23,256,0003,238,0006,372(a)ReflectsretroactiveapplicationofchangeInaccountingforfuelcosts.(b)Basedonyoarwndmarketprice.(c)WinterpeakshownwasreachedearlyInsubsoquontyear.In1970peakIsthatwhichwouldhaveoccurredifloadcurtailmentmeasureshadnotbeenIneffect.12 STATEMENTOFINCOMEOperatingRevenues19741971197019731972ThousandsofDollars3472,038384,814345,782300,707255,313OperatingExpensesWagesandemployeebenefitsFuel(Note2).Powerpurchases.Interchangepowersales.Otheroperatingcosts.DepreciationIncometaxes(Note6)Taxes,otherthanincome.OperatingIncomeOtherIncomeandDeductionsAllowanceforfundsusedduringconstruction.Incometaxcredits(Note6)Other-netIncomeBeforeInterestCharges.InterestChargesLong-termdebtShort-termdebtandother.IncomeBeforeCumulativeEffectofChangeinAccountingforFuelCostsNonrecurringCumulativeEffecttoDecember31,1973ofChangeinAccountingforFuelCosts,NetofRelatedIncomeTaxes($4,831)(Note2)..........NetincomeDividendsonPreferredandPreferenceStock.......EarningsApplicabletoCommonStock............67,374192,35324,176(108,723)54,48952,39939,21135,571356,850115,18620,7325,0763,4'i829,226144,41251,1499,94661,09583,3174,16287,47919,656$67,82357,421125,57715,299(70,175)45,23448,83733,94330,005286,14198,67314,967911,30016,358115,03143,2034,91648,11966,91266,91217,19149,72155,22095,220'3,514(34,569)39,51241,44626,08625,658262,08783,70514,647334(305)14,67698,38136,5073,95340,46057,92157,92114,52643,39548,19879,49918,963(15,468)33,21434,90311,54522,146233,00067,70716,242176(63)16,35584,06230,8954,59535,49048,57248,57211,39237,18045,77961,62121,982(9,356)24,009321733,22518,197197,63057,6839,723112809,91567,59825,3817,28232,66334,93534,9356,42628,509EarningsPerShareofCommonStock(a)BeforecumulativeeffectofchangeinaccountingforfuelcostsNonrecurringcumulativeeffecttoDecember31,1973ofchangeinaccountingforfuelcosts.....$2.88$3.072.572.572.482.482.372.371.971.97ProFormaAmountsAfterGivingEffecttotheRetroactiveApplicationofChangeinAccountingforFuelCostsEarningsapplicabletocommonstock..........$63,66151,06643,16138,48830,252Earningspershareofcommonstock(a)AverageNumberofSharesOutstanding(thousands)..DividendsDeclaredPerShareofCommonStock....(a)Basedonaveragenumberofsharesoutstanding.SeoaccompanyingNolesloFfnanclalSlalemenls.$2.8822,0671.772.6419,3591.682.4617,5131.642.4515,6901.602.0914,4721.6013 BALANCESHEETASSETSDecember3119741973ThousandsofDollarsUTILITYPLANTPlantinservice-atoriginalcostElectricSteamheatLessaccumulateddepreciationConstructionworkinprogress-atcost$1,687,7407,7031,695,443354,2491,341,194403,7071,744,9011,619,3277,7281,627,055312,1781,314,877219,2771,534,154INVESTMENTSSubsidiaries-atequity.SafeHarborWaterPowerCorporation-atequity......'.....Nonutilityproperty-atcost,lessaccumulateddepreciation..Other-atcostorless.4,6313,5992,4954,06414,7895,3203,5962,7497,35419,019CURRENTASSETSCash(Note3).Constructionfundforpollutioncontrolfacilities(Note4)....Accountsreceivable,lessreserveCustomersOtherRecoverablefuelcosts(Note2)Materialsandsupplies-ataveragecostFuelOperatingandconstruction.Other.16,2513,93333,90722,57435,58771,88624,9799,139218,25614,9039,07322,65610,92926,88417,0065,598107,049DEFERREDDEBITS7,482$1,985,4286,6241,666,846SeeaccompanyingNotestoFinancialStatements. SCHEDULEOFCAPlTALSTOCKANDLONG-TERMDEBTDecember31,1974ThousandsofDollarsPREFERENCESTOCK-nopar,cumulative,authorized5,000,000shares$8.00series,outstanding350,000shares...............$8.40series,outstanding400,000shares...............$8.70series,outstanding400,000shares...............$13.00series:(a)outstanding212,500shares.....tobeissuedApril1,1975(b)....$35,00040,00040,00021,2503,750$140,000COMMONSTOCK-nopar,authorized30,000,000shares,outstanding23,251,255shares...............$354,540CAPITALSTOCKPREFERREDSTOCK-$100par,cumulative4t/2/oauthorized629,936shares,outstanding530,189shares......$53,019Series,authorized5,000,000shares3.35/o,outstanding41,783shares.4,1784.40/o,outstanding228,773shares22,8784.60lo,outstanding63,000shares..6,3007.40/o,outstanding400,000shares(a)40,0008.60/o,outstanding222,370shares22,2379%%d,outstanding77,630shares...7,763$156,375LONG-TERMDEBTFIRSTMORTGAGEBONDS3'/oseriesdue1975-toberefinanced..27/a/oseriesdue1976................2a/4/oseriesdue1977................31/a/oseriesdue1978................2a/4'/oseriesdue1980................3a/a/oseriesdue198210'/a/oseriesdue1982...............3t/2!oseriesdue1983................3a/a'/oseriesdue1985................45/aloseriesdue1991................45/8/oseriesdue1994................5/a/oseriesdue1996................6a/4'/oseriesdue1997................7/oseriesdue1999.81/a/oseriesdue1999................9/oseriesdue2000.71/4%%dseriesdue2001................75/8loseriesdue20027t/2%%dseriesdue2003................9t/4/oseriesdue2004................4t/2%%dto5/opollutioncontrolseriesAdueannually$500,1977-1983;$900,1984-2002;$7,400,2003.......NOTES6'/2lo-7/odue19767/odue1980OTHER$93,0008,00020,0003,00037,0007,500100,00025,00025,00030,00030,00030,00030,00040,00040,00050,00060,00075,00080,00080,00028,000891,5002,80020,00022,80049$914,349SECURITIESSOLDIN1973AND19741973JanuaryMay'ulyAugustNovemberSecurityFirstMortgageBonds,7t/2loSeriesdue2003..FirstMortgageBonds,4t/2%%dto55/a/oPollutionControlSeriesAdue1977-2003...........Note,7'/odue1980.SeriesPreferredStock,7.40/o.CommonStock.Shares400,0002,000,000Amount$80,00028,00020,00040,00040,900$208,9001974AprilJulyOctoberOctober2,200,000250,000(b)$80,00035,15625,000100,000$240,156(a)Boththo7.40/oSorlosProforrodStockandthoProforoncoStock,$13.00SorlosmustborotirodInfullthroughthooporatlonofsinkingfundsatarodomptionpriceof$100porsharoplusaccruedandunpaiddividondstothodataofsuchredemption.BegInningJuly1,1979andannuallythoroaftorthroughthoyoar2003,16,000sharesoftho7.40'/oSorlosProforrodmustborodoomod,andboglnningOctober1,1980andannuallythereafterthroughthoyoar1999,12,500sharesofthoProforoncoStock,$13.00Soriosmustborodoomod.(b)37,500sharestoboIssuedandpaidforApril1,1975underdolayoddeliverycontracts.16SooaccompanyingNotesfoFinancialSfafomonfs. LIABILITIESCAPITALIZATION(a)ShareownersinvestmentPreferredstockPreferencestockCommonstock.Capitalstockexpense(deduction).(NoamortizationplanInellect)Earningsreinvested(Notes5and7)S156,375140,000354,540(7,580)185,695156,375115,000319,384(6,889)157,113December3119741973ThousandsofDollars829,030740,983Long-termdebt914,3491,743,379753,0271,494,010CURRENTLIABILITIESCommercialpapernotes(Note3)Accountspayable.TaxesaccruedDeferredincometaxesonrecoverablefuelcosts(Note2).DividendspayableandinterestaccruedOther.85,50937,12111,85218,84034,6338,338196,29339,85133,70513,45728,1397,029122,181DEFERREDANDOTHERCREDITSDeferredinvestmenttaxcredits.Deferredincometaxes.Contributionsinaidofconstruction(Note10)..Other.18,86022,6894,20745,756$1,985,42815,32317,4369,7048,19250,6551,666,846(a)SeoScheduleofCapitalStockandLong-TertnDebtonpage16.SeeaccompanyingNotesloFinancialStatements. STATEMENTOFCHANGESINFINANCIALPOSITION19741973197219711970ThousandsofDollars66,91257,92'I48,57234,93548,83741,44634,90332,17311,2827,984(1,127)(1,762)(20,732)520(14,967)220112,284(9,723)(2,105)53,518(14,647)(16,242)22022092,92466,326128,45635,156OutsidefinancingCommonstockPreferredstockPreferencestock.Firstmortgagebonds.........Otherlong-termdebt.Short-termdebt-netincrease.28,09330,00040,00050,0002,68746,94037,12040,90040,00025,000180,00036045,65835,00075,0008,34220,231185,51340,00060,00010,506108,00020,024286,174208,924147,626150,780SOURCEOFFUNDSOperationsNetincome(1974includes$4,162nonrecurringamount)$87,479Charges(credits)againstincomenotinvolvingworkingcapitalDepreciation....................52,399Noncurrentdeferredincometaxesandinvestmenttaxcredits-net..........8,790AllowanceforfundsusedduringconstructionOtherWorkingcapital(excludingshort-termdebt)-decreaseOther-net$414,6303,156(a)1,874681326,238279,11823,8964,799242,6478,522212,820APPLICATlONOFFUNDSConstructionexpendituresAllowanceforfundsusedduringconstruction$271,460(20,732)250,728224,496(14,967)209,529218,754192,399(14,647)(16,242)204,107176,157165,142(9,723)155,419SecuritiesretiredFirstmortgagebondsOtherlong-termdebtShort-termdebt-netdecrease18,63218,63210,04156,63166,67215,00010,05725,0578,'11721,62729,7447,7631,2364,12213,121Dividendsonpreferred,preferenceandcommonstock.Workingcapital(excludingshort-termdebt)-increaseOther-net58,89750,03743,33036,74629,45682,753(a)3,62014,8246,624$414,630326,238279,118242,647212,820ta)Thenetchangesinworkingcapitalresultedprincipallyfromthofollowing:1974,Increasesinfuelinvontory,accountsreceivableanddeferredfuelcostslessrelateddeferredincometaxes;1973,increasesinotheraccountsreceivable,constructionlund,accountspayableanddividondspayabloandaccruedinterest.SoeaccompanyingNotesfoFinancialSfatomenfs. Balance,January1.............NetIncome(1974includes$4,162nonrecurringamount).........$157,11387,479244,592STATEMENTOFEARNINGSREINVESTED197466,912207,15057,921183,56848,572162,393197119731972ThousandsofDollars140,238125,647113,8211970108,34234,935143,277DividendsPreferredstock...............Preferencestock..............Commonstock(pershare-1974,$1.77;1973,$1.68;1972,$1.64;1971-1970,$1.60)..Balance,December31(Notes5and7)......9,39310,26339,24158,897$185,6957,5519,64032,84650,037157,1136,4338,09328,80443,330140,2386,4334,95925,35436,746125,6476,29513123,03029,456113,821NOTESTOFINANCIALSTATEMENTSDecember31,1974and19731~SUMMARYOFACCOUNTINGPOLICIESAccountingSystemAccountingrecordsaremaintainedinconform-itywiththeuniformsystemofaccountspre-scribedbytheFederalPowerCommission(FPC)andadoptedbythePennsylvaniaPublicUtilityCommission(PUC).UtilityPlantCostsofadditionstoutilityplantandreplace-mentsofunitsofpropertyarecapitalized.Costsofdepreciablepropertyretiredorreplacedareeliminatedfromutilityplantaccountsandsuchcosts,plusremovalcosts,lesssalvage,arechargedtoaccumulateddepreciation.Costsoflandretiredorsoldareeliminatedfromutilityplantaccountsandanygainsorlossesarere-flectedontheStatementofIncome.Allexpendi-turesformaintenanceandrepairsofpropertyandthecostofreplacementofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.AllowanceforFundsusedDuringConstructionAsprovidedintheuniformsystemofaccounts,thecostoffunds(interestonborrowedmoneyandareasonablerateonothercapit'al)usedtofinanceconstructionworkinprogressiscapital-izedaspartofconstructioncost.AnamountequaltotheamountsocapitalizedisshownontheStatementofIncomeunderOtherIncomeandDeductionsandservestooffsettheactualcostoffinancingconstructionworkinprogress.PriortoFebruary1,1974theinterestcomponentoftherateusedtocomputetheallowancewastreatedona"before-tax"basisandtheratewasnotreducedbyanyrelatedincometaxreduc-tions.Tobeconsistentwiththetreatmentac-cordedforrate-makingpurposestherateusedtocomputetheallowancewasconvertedtoan"after-tax"basisasofFebruary1,1974.Fortheyear1974,OtherIncomeandDeductions-In-cometaxcreditshasbeencreditedwith$6.1millionofincometaxreductionsassociatedwiththisinterest,withacorrespondingincreaseinincometaxeschargedtoOperatingExpenses.DepreciationForfinancialstatementpurposes,thestraight-linemethodofdepreciationisusedtoaccumu-lateanamountequaltothecostofutilityplant18 andremovalcosts,lesssalvage,overtheesti-matedusefullivesofproperty.SubsidiariesandSafeHarborTheCompanyhassevenwholly-ownedsubsid-iaries(includingfourcoalcompanies)andalsoownsone-thirdoftheoutstandingcapitalstockofSafeHarborWaterPowerCorporationrepresent-ingone-halfofthatcompany'svotingsecurities.InvestmentsinsubsidiariesandinSafeHarborWaterPowerCorporationarerecordedusingtheequitymethodofaccounting.Underthismethod,theseinvestmentsarecarriedontheBalanceSheetatcostplusundistributedearningssincedatesofacquisition,andequityinthecurrentyearearningsofthesecompaniesisreflectedontheStatementofIncomeunderOtherIncomeandDeductions.SincetheCompany'ssubsidiariesarenoten-gagedinthebusinessofgeneratinganddistrib-utingelectricity,theCompanybelievesthatitsfinancialpositionandresultsofoperationsarebestreflectedwithoutconsolidation.Ifallthesubsidiarieswereconsideredintheaggregateasasinglesubsidiary,theywouldnotconstituteasignificantsubsidiary.RevenuesRevenuesarebasedoncyclebillingsrenderedtocertaincustomersmonthlyandothersbi-monthly.TheCompanydoesnotaccruerevenuesrelatedtoenergydeliveredbutnotbilled.TheCompany'stariffsincludefueladjustmentclausesunderwhichfuelcostsaboveorbelowthelevelsallowedinapprovedrateschedulesarepermittedtobebilledorcreditedtocustomersafterthefuelcostsareincurred.FuelCostsRecoverableUnderFuelAdjustmentClausesInOctober1974,effectiveasofJanuary1,1974,theCompanychangeditsmethodofaccountingforfuelcostsrecoverableunderfueladjustmentclauses.SeeNote2forfurtherinformationre-gardingthisaccountingchange.IncomeTaxesDeferredtaxaccountingisfollowedforitemswheresimilartreatmentinratedeterminationshasbeenorisexpectedtobepermittedbythePUC.Theprincipalitemsareacceleratedamorti-zationofcertifieddefensefacilitiesandpollutioncontrolequipment,deductionofcostsofremov-ingretireddepreciableproperty,thatportionoftaxdepreciationarisingfromshorteningdepre-ciablelivesby20/oaspermittedbytheclasslifedepreciationsystemand,beginningin1974,fuelcostsrecoverableunderfueladjustmentclauses.Taxreductionsarisingprincipallyfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddifferentlyfortaxcomputationthanforbookpurposesareaccountedforundertheflow-throughmethod.Thesereductionsinincometaxprovisionsarealsoaccordedflow-throughtreatmentinratedeterminationsbythePUCandcurrentlyresultinlowerratesforcustomersthanwouldotherwisebepossible.Investmenttaxcreditsaredeferred.DeferredamountspertainingtotheJobDevelopmentIn-vestmentCredit(RevenueActof1971)arebeingamortizedovertheaveragelivesoftherelatedpropertywhileamountspertainingtothecreditspermittedunderpriorlawsarebeingamortizedover5-yearperiods.RetirementPlanTheCompanyhasaRetirementPlancomposedoftwoparts:(1)anon-contributoryportionwhichprovidesbenefitsforalleligibleactiveemployeeswiththefullcostabsorbedbytheCompany,and(2)avoluntaryportioninwhichcontributionsaremadebybothemployeesandtheCompany,butthefullcostofpastserviceandPlanimprove-mentsisbornebytheCompany.Approximately95/oofeligibleactiveemployeesaremembersofthevoluntaryportionofthePlan.CompanycontributionstothePlanincludeamountsre-quiredtofundcurrentservicecostsandtoamor-tizeunfundedpastservicecostsoverperiodsofnotmorethan20years.2.FUELCOSTSRECOVERABLEUNDERFUELADJUSTMENTCLAUSESUnderthefueladjustmentclauses,fuelcostsin-curredinamonthinexcessofabaseamountarereflectedincustomers'illsoverasubsequentthree-monthperiod.PriortoOctober1974thefuelexpenserecordedbytheCompanyeachmonthwasthecostoffuelburnedtogenerateelectricityduringthatmonth.However,duetothe19 sharpriseinthecostoffuelduring1974thisprocedureresultedinpronouncedmismatchingoffuelcostsandrevenuesbyaccountingperiods.InOctober1974,effectiveasofJanuary1,1974,theCompany,asauthorizedbythePUC,changeditsmethodofaccountingtorecordasfuelex-penseanamountcorrespondingtothefuelcostsbeingbilledtocustomersduringsuchmonth.Thischangeresultsinmatchingfuelcostsandreve-nuesbydeferringthechargetoincomeoffuelcostsrecoverableinthefuturetotheperiodsinwhichthesecostsarebilledtocustomersthroughapplicationofthefuelclauses.Thechangedac-countingalsoconformsmorecloselytothetreat-mentpresentlygivenfuelcostsbyregulatorybodiesinsettingelectricrates.Followingthenewprocedure,$35.6millionofthecostoffuelburnedduring1974wasdeferredatDecember31,1974tobeexpensedintheperiodsthecorrespondingfueladjustmentrevenuesarerecordedand$9.0millionoffuelcostsrepresent-ingtheretroactivedeferralatDecember31,1973ofaportionofthecostoffuelburnedin1973waschargedtoexpensein1974.For1974,fuelcostswerelowerbyanetamountof$26.6millionand,afterincometaxeffects,earningsapplicabletocommonstockwereincreasedby$12.6million($0.57pershare).Therecordingofthe$9.0milliondeferralofre-coverablefuelcostsatDecember31,1973re-sultedinanonrecurringcredittoincomein1974which,afterincometaxeffects,amountedto$4.2million($0.19pershare).TheproformaamountsshownontheStatementofIncomereflecttheeffectofretroactiveapplicationofdeferredfuelcostaccountingandrelatedincometaxeffectshadthenewmethodbeenusedsincetheprinci-palfueladjustmentclausebecameeffectivein1970.3.COMPENSATINGBALANCESANDSHORT-TERMDEBTInordertoprovideloansforinterimfinancingandprovideback-upfinancingcapabilityforcommer-cialpapernotestheCompanyhadlinesofcreditwithvariousbanksaggregating$197millionatDecember31,1974.Useoftheselinesofcreditwasrestrictedtotheextentof$13.5millionbyshort-termbankloanstocertainownedandcon-trolledfuelsupplycompanies.Compensatingbankbalancesarerequiredinconnectionwith$145millionoftheselinesofcredit.Compensat-ingbankbalancesaregenerally10'/oofthelineofcreditor20koftheamountborrowed,which-everishigher,onanaverageannualbasis.Thesebalancesarenotrestrictedastowithdrawal.Basedonbankborrowingsduring1974,theaver-agecompensatingbankbalancerequirementwasabout$13.8million,ofwhichabout$2millionwassatisfiedby"float"(checksissuedbutnotclearedbythebanks).Linesofcreditaggregating$52millionweremaintainedbypaymentofcommitmentfeeswhicharebasedoneitherapercentageoftheprimeinterestratetimesthelineofcreditorafixedpercentageoftheline.Commitmentfeesonanannualizedbasisapproximated$0.4millionatDecember31,1974.Bankborrowingsaregenerallyforoneyear,andmaybeprepaidatanytimewithoutpenalty.Bor-rowingsunderlinesofcreditrequiringcompen-satingbankbalancesareatthelendingbank'sprimeinterestrateineffectfromtimetotime.Borrowingsunderlinesforwhichcommitmentfeesarepaidaregenerallyat110/oofthelend-ingbank'sprimeinterestrateineffectfromtimetotimeinadditiontothecontinuedpaymentofthecommitmentfee.TheCompanyhadnobankloansoutstandingatDecember31,1974.Com-mercialpapernotesaregenerallysoldforpe-riodsrangingfrom30to60days.AtDecember31,1974theCompanyhad$85.5millionofcom-mercialpapernotesoutstanding.Theweightedaveragediscountrateapplicabletothesenoteswas9.4/o.Themaximumaggregateamountofshort-termdebtoutstandingattheendofanymonthin1974was$140.3million;theaverageaggregatedailyamountoutstandingduring1974was$95.6mil-lion.Theapproximateweightedaverage'interestrateofshort-termdebtduring1974was10.0/0,calculatedbydividingthetotalshort-termdebtin-terestexpensefortheyearbytheaverageaggre-gatedailyamountofshort-termdebtoutstanding.4.POLLUTIONCONTROLCONSTRUCTIONFUNDTheunexpendedproceedsfromthesaleofFirstMortgageBonds,PollutionControlSeriesA,amountingto$3.9millionatDecember31,1974,areheldbyatrusteeinaConstructionFundwhichconsistsofcashandtemporarycashin-vestments.PaymentsmaybemadefromtheFund20 uponrequisitionbytheCompanyforcostsrelatedtotheconstructionofcertainpollutioncontrolfacilities.5.DIVIDENDRESTRICTIONSTheCompany'scharterandmortgageindenturesrestrictthepaymentofcashdividendsonCom-monStockundercertainconditions.Underthecharterprovisions,whicharethemorelimiting,norestrictionsareeffectiveonthepaymentofsuchdividendsoutofcurrentearnings.TheamountofearningsreinvestedfreeofrestrictionsunderthecharteratDecember31,1974was$136.7million.Portionoftaxdepreciationarisingfromshorteningdepreciablelivesby20%undertheclasslifedepreciationsystem......Costsofremovingretireddepreciableproperty.....Acceleratedamortizationofpollutioncontrolfacilities..Recoverablefuelcosts.....Abnormallossonretirementofproperty..............Acceleratedamortizationofemergencyfacilities......$3,7151,7253,0572,21965814,009(a)385(87)871(758)$19,262(795)5,73719741973ThousandsofDollars6.INCOMETAXESIncometaxexpensefortheyears1974and1973isreflectedontheStatementofIncomeasfollows:(a)Excludes$4,831deferredincometaxesrelatedtononrecurringcumulativeeffecttoDecember31,1973ofchangeinaccountingforfuelcosts.OperatingExpenses:CurrentFederal.........State...........DeferredFederal..State....19741973ThousandsofDollars$12,55416,4543,8586,20716,41222,66115,9914,5573,2711,18019,2625,737IncometaxexpensedifferedfromtheamountcomputedbyapplyingthecombinedFederalandStatecorporateincometaxrates(1974,52.94%;1973,53.72%)topre-taxincomeasfollows:19741973ThousandsofDollars$87,47966,91238,96633,852$126,445100,764InvestmenttaxcreditsDeferred...........Amortizationofdeferments.........OtherIncomeandDeductions:FederalState..........NonrecurringCumulativeEffecttoDecember31,1973ofChangeinAccountingforFuelCosts:Federal...............StateTotalincometaxexpense.......4,753~1,2163,53739,211(4,156)(920)~a,om)3,8429894,831$38,9667233~1,6885,54533,943(46)(45)~9133,852Deferredincometaxesresultfromdifferencesbetweenthetimethefollowingitemsarerecog-nizedasexpensesfortaxandfinancialstatementpurposes:IndicatedincometaxexpenseontheaboveatcombinedFederalandStatetaxrates......Reductionsinindicatedtaxdueto:Amortizationofinvestmenttaxcreditdeferments..Allowanceforfundsusedduringconstruction-nontaxable...........Taxdepreciationinexcessofbookdepreciation..Taxandpensioncosts-taxdeductioninexcessofbookexpense......Other.................Totalreductioninindicatedincometax..Incometaxexpense.......Effectivetaxrateonpre-taxincome.........1,2161,68810,9768,0418,7997,5312,4914'4922,68733227,974$38,96630.8%20,27933,852336%$66,94054,13121 7.PROPERTIESSUBJECTTOFEDERALLICENSES,TheCompanyoperatestwohydroelectricproj-ectsunderlicensesissuedbytheFPC.CertainreservesrequiredtobeprovidedundertheFed-eralPowerActhavenotbeenrecordedpendingapprovaloftheamountsbytheFPC.TheCom-panyestimatesthatsuchreservesapplicabletotheyearsfrom1946wouldnotexceed$2.7mil-lionatDecember31,1974.8.RETIREMENTPLANObligationsoftheCompany'sRetirementPlanarecurrentlyfundedthroughaTrustFund.AtJune30,1974,theendoftheFund'smostrecentfiscalyear,theFund'sassetsatcostwere$85.9million.Pensioncostswere$6.7millionintheyear1974and$6.8millionin1973.Planamendmentseffectivein1974and1975,sub-jecttoInternalRevenueServiceapproval,pro-videforincreasedbenefitsandreducedemployeecontributions.Includingthesechanges,atJune30,1974theactuariallycomputedunfundedpastservicecostwas$20.9millionandvestedbene-fitsexceededthecostbasisoftheFund'sassetsby$15.3million.ItisestimatedthatPlanamend-mentswillincreaseannualpensioncostsbyapproximately$1.2millionin1975.TheCompanydoesnotcurrentlyanticipateanysignificantincreaseinpensioncostsasaresultoftheEmployeeRetirementIncomeSecurityActof1974.9.RENTALSANDNONCANCELABLELEASECOMMITMENTSTotalrentalschargedtooperatingexpensefor1974and1973amountedto$8.9and$7.5million,respectively.AtDecember31,1974theCompanywascom-mittedundernoncancelableleasesexpiringatvariousdatesto1996.Theminimumrentalcom-mitmentsundertheseleasestotal$55.2milliondueasfollows(millionsofdollars):1975,$5.1;1976,$5.0;1977,$4.8;1978,$4.6;1979,$4.3;1980through1984,$15.6;1985through1989,$8.1;1990through1994,$6.5;after1994,$1.2.Theseminimumrentalcommitmentsareapplicabletothefollowingcategoriesofproperty:combus-,tionturbinegeneratingequipment,$18.3million;railroadcoalcars,$16.4million;computerequip-ment,$15.9million;constructioncranes,$4.6mil-lion.GenerallytheleasescontainrenewaloptionsandobligatetheCompanytopaymaintenance,insuranceandotherrelatedcosts.Theimpactuponnetincomeineachoftheyears1974and1973wouldbelessthan1'/oifallnon-capitalizedfinancingleaseswerecapitalizedandamortizedonastraight-linebasiswithinterestaccruedonthebasisof.theoutstandingleaseliability.10.CONTRIBUTIONSINAIDOFCONSTRUCTIONInaccordancewitharevisionoftheuniformsys-temofaccounts,contributionsinaidofconstruc-,tion,whichisanaccumulationofnonrefundableamountsreceivedfromcustomersforconstruc-tion,werereclassifiedasacredittoUtilityPlanteffectiveJanuary1,1974.11.COMMITMENTSANDCONTINGENTLIABILITIESTheCompanyestimatesthatabout$2.2billionwillberequiredtocompleteconstructionproj-ectsinprogressorauthorizedtobestartedin1975.Ofthisamount,about$340millionisap-plicabletotheyear1975withthebalancetobeexpendedthroughtheyear1987.TheCompanyissubjecttocertainpresentanddevelopinglawsandregulationswithrespecttoairandwaterquality,landuseandotheren-vironmentalmatters.TheCompanyisunabletopredicttheultimateeffectofsuchlawsandregu-lationsuponitsexistingandproposedfacilitiesandoperations.ItispossiblethatsuchlawsandregulationsmayrequiretheCompanytomodify,supplement,replaceorceaseoperatingcertainofitsequipmentandfacilities,delayorimpedeconstructionandoperationofnewfacilities,andrequiresubstantialadditionalexpendituresinamountswhicharenotnowdeterminable.Inconnectionwithprovidingforitsfuturebitu-minouscoalsupply,theCompanyatDecember31,1974hasguaranteedcapitalobligationsofcertaincoalsuppliers(includingfourownedandtwocontrolledcoalcompanies)aggregating$124.8million.22 AUDITORS'PINIONTwoBroadwayNewYork10004HASKINS&SELLSCedifiedPublicAccountantsTheShareownersandBoardofDirectorsofPennsylvaniaPower&LightCompany:WehaveexaminedthebalancesheetofPennsylvaniaPower&LightCompanyasofDecember31,1974and1973,therelatedstatementsofIncome,earningsreinvested,andchangesInfinancialposi-tionfortheyearsthenendedandthescheduleofcapitalstockandlong-termdebtasofDecember31,1974.Ourexaminationwasmadeinaccordancewithgenerallyacceptedauditingstandards,andaccordinglyIncludedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircumstances.Inouropinion,suchfinancialstatementsandschedulepresentfairlythefinancialpositionoftheCompanyatDecember31,1974and1973andtheresultsofitsoperationsandchangesinitsfinancialpositionfortheyearsthenended,Inconformitywithgenerallyacceptedaccountingprinciplesconsistentlyapplied(exceptforthechange,withwhichweconcur,inthemethodofaccountingforrecoverablefuelcostsasdescribedinNote2oftheNotestoFinancialStatements)duringtheperiodandonabasisconsistentwiththeprecedingyear.February3,1975HASKINS&SELLSQuarterlyDividendsandMarketPriceofVotingSecuritiesfor1974and1973ReportedMarketPrice-DollarsperShareQuarterlyDividendsDeclared2.002.I02.1752.93(b)1974CommonStock....~.~...$0.45(a)PreferredStock4f/2/o..........~...~.1.125Series3.35o/o..............4.40o/o..............46Q/0740/08.60'/o..............9.00'/o..............PreferenceStock$8.00.................$8.40.................$8.70.................$13.00................1stQuarterHighLow$23190/457'/2524039560/45255'/253104f/210'I104102100'/2961020/49810699'/22ndQuarterHighLow217/s1654'/2487/038355246'/25249103'/29010094957899801000/4863rdQuarterHighLow18'/41350'/243332948417/s48468982'ls89778068813/469910/473384548877028'/241457075806781'/27086'2109f/21004thQuarterHighLow170/0147/e484320220/4196560'/262587/061424239'/2535851605653102'/21091001091081040.83751.101.15(c)2.152.251973CommonStock..........0.4226240/0230/02222'/2PreferredStock4'/2o/o................1.125556053Series3.35o/o..............4342434242440o/o..............63'/259'/2615758'/446Q/062606060607.40'/o..............8.60/o..............114109112f/2108'/2108'/4900'/o110109110109109PreferenceStock$8.00............2.00106102104f/210010396101f/2943/4$8.40.................2.101090/4105108'/2104105f/298f/210598$8.702.175113107112106'/2105101107'/297'/2TheprincipaltradingmarketforailclassesofstockIsthoNewYorkStockExchangeoxcoptforthe3.35'/o~4.60/oand9.00/oSeriesPreferredwhicharoIistodonthoPBWExchangebutaretradedprincipallyoverthocounter.Pricerangesfortho3.35/o,4.60/oand9.00/oSeriesProforrodStocksorobasedonthobestavaiiabiohighandIowbidpricesduringthoperiodsondshouldbovlowedasreasonableapproximations.(a)Firstquarterof1974was$0.42,remainingquarters$0.45.(b)StockIssuodOctobor1974,fourthquartordividendonly.(c)Tho7.40'/oSeriesPreferredwasaprivateplacementinAugust1973ondIsnotpubliclytraded.Tho1973thirdquarterdividendwas$0.9456andsubsequentquarterlydividendswore$1.85.23 PRINCIPALOFFICERSBOARDOFDIRECTORSJACKK.BUSBY,PresidentBROOKER.HARTMAN,ExecutiveVicePresident,OperationsROBERTR.FORTUNE,VicePresident,FinancialGEORGEF.VANDERSLICE,ComptrollerCHESTERR.COLLYER,TreasurerDONALDJ.TREGO,AssistantTreasurerJOHNT.KAUFFMAN,VicePresident,SystemPower&EngineeringNORMANW.CURTIS,VicePresident,Engineering&ConstruclionEMMETM.MOLLOY,VicePresident,HumanResourceandDevelopmentRICHARDH.LICHTENWALNER,VicePresident,PublicRelationsEDWARDM.NAGEL,VicePresident,GeneralCounselandSecretaryLEONL.NONEMAKER,VicePresident,DivisionOperationsCHARLESE.FUQUA,VicePresident,SusquehannaDivisionCHARLESJ.GREEN,VicePresident,HarrisburgDivisionCARLR.MAIO,VicePresident,LehighDivisionJAMESJ.MCBREARTY,VicePresident,NorlheastDivisionHERBERTD.NASHJR.,VicePresident,ConsumerandCommunityServicesEDWINH.SEIDLER,VicePresident,DistributionBRENTS.SHUNK,VicePresident,LancasterDivisionCLIFFORDL.ALEXANDERJR.,Washington,D.C.PartnerolArnold&Porter,CounsellorsalLawJACKK.BUSBY,AllentownPresidentoftheCompanyRALPHR.CRANMER,WilliamsportMemberolBoardolDirectors-GrllPublishingCompanyEDGARL.DESSEN,HazletonPhysician-RadiologistBROOKER.HARTMAN,AllentownExecutiveVicePresident,OperationsW.DEMINGLEWIS,BethlehemPresidentofLehighUniversityJOHNA.NOBLE,ScrantonPresidentolClelandSimpsonCompany,DepartmentstoresRUTHPATRICK,PhiladelphiaChiefCuratoroltheLimnologyDepartment,AcademyolNaturalSciencesNORMANROBERTSON,PittsburghSeniorVicePresidentandChiefEconomistolMellonBank,N.A.JOSEPHT.SIMPSON,HarrisburgChairmanoltheBoardolHarscoCorporation,DiversifiedmanufactureroffabricatedmetalproduclsM.J.WARNOCK,LancasterChairmanoltheBoardolArmstrongCorkCompany,ManulacturerofinteriorfurnishingsandspecialtyproductsCHARLESH.WATTSII,LewisburgPresidentolBucknellUniversityS.HAYWARDWILLS,Miami,FloridaChairmanoltheBoardandPresidentolGACCorporatfon,CommunitydevelopmentExecutiveCommittee:JackK.Busby,chairman;Messrs.Hartman,Simpson,WarnockandWills.AuditCommittee:CharlesH.Watts0,chairman;Messrs.AlexanderandWarnockandDr.PatrickTheCompanyfilesForm10-KannuallywiththoSecuritiesandExchangeCommission.Form10-KiscomposodofthisAnnualReporttoshareownersandadditionalInformattonconcerningtheCompanyanditsoperattons.ThisadditionalInformationwillbeavailabloafterApril1,1975bywritingtoPennsylvaniaPower&LightCompany,TwoNorthNinthStreet,Allentown,Pa.18101,attention:Mr.GeorgoI.Kllno,InvestorServicesManager. FISCALAGENTSTRANSFERAGENTSFORPREFERRED,PREFERENCEANDCOMMONSTOCKIndustrialValleyBankandTrustCompany634HamiltonMallAllentown,Pennsylvania-18101IrvingTrustCompanyOneWallStreetNewYork,NewYork-10015PennsylvaniaPower&LightCompanyTwoNorthNinthStreotAllentown,Pennsylvania-18101REGISTRARSFORPREFERRED,PREFERENCEANDCOMMONSTOCKTheFirstNationalBankolAllentownHamiltonMallatSeventhAllentown,Pennsylvania-18101MorganGuarantyTrustCompanyolNowYork23WallStreetNewYork,NewYork-10015DIVIDENDDISBURSINGOFFICEFORPREFERRED,PREFERENCEANDCOMMONSTOCKTreasurerPennsylvaniaPower&LightCompanyTwoNorthNinthStreetAllentown,Pennsylvania-18101SECURITIESLISTEDONEXCHANGESNEWYORKSTOCKEXCHANGEFirstMortgageBonds,3%Seriesduo1975FirstMortgageBonds,10Ye%Sorlesduo19824'PreterredStock(Code:PPLPRB)4.40%SeriesPreferredStock(Code:PPLPRA)8.60%SoriosPrelorredStock(Codo:PPLPRG)PrelerencoStock,$8.00Serios(Codo:PPLPRJ)PrelerencoStock,$8.40Series(Code:PPLPRH)PrelerenceStock,$8.70Sories(CodotPPLPRI)PrelerencoStock,$13.00Series(Code:PPLPRK)CommonStock(Code:PPL)PBWSTOCKEXCHANGE4~h%PreferredStock3.35%SeriesPre!orredStock4.40%SeriesPrelerredStock4.60%SeriesPrelerredStock8.60%SeriesPrelorredStock9%SeriesPre!orredStockPrelerenceStock,$8.00SeriesPrelerenceStock,$8.40SeriesPrelerenceStock,$8.70SeriesPrelerenceStock,$13.00SeriesCommonStockTheannualmeetingofshareownerswillbeheldattheLehlghConsistoryScottishRiteAuditorium,1533HamiltonSt.,Allentown,Pa.,onWednesday,April23,1975.Formalnoticeofthemeeting,togetherwithareservationcardformeetingattendance,willbemailedtoshareownersofrecordMarch10,1975,onoraboutMarch17,1975. PpaLPENNSYLVANIAPOWER8LIGHTCOMPANYTwoNorthNinthStreet,Allentown,Pa.18101TeiephonetAreaCode215821-5151BULKRATEU.S.POSTAGEPAIDAllentown,Po.PermitNo.104LtZHOINV.S.A. ~PennsylvaniaPower&LightCompanyLAnnttelI:Isn't't'1Q7$THEATTACHEDFILESAREOFFICIALRECORDSOFTHEOFFICEOFREGULATION.THEYHAVEBEENCHARGEDTOYOUFORALIMITEDTIMEPERIODANSMUSTBERETURNEDTOTHECENTRALRECORDSSTATION008.ANYPAGE(S}REMOVEDFORREPRODUCTIONMUSTBERETURNEDTOITS/THEIRORIGINALORDER.DEADLINERETURNDATEVi',wO'Y.AhcMARYJINKS,ClIIEFCENTRALRECORDSSTATION~~gagg',:fc. HIGHLIGHTS197418,963472,036197519,113$544,12963,661(a)$2.87$1.80$23.172.88(a)1.7722.912.92(a)2.36(a)ElectricEnergySales-millionskwh.OperatingRevenues-thousands...EarningsApplicabletoCommonStock-thousands......$73,032EarningsPerShare,basedonaveragenumberofsharesoutstandingDividendsDeclaredPerShare......BookValuePerShareTimesInterestEarnedBeforeincometaxexpense2.80Afterincometaxexpense........2.31ConstructionExpenditures-thousands.$345,289271,460TotalCapitalInvestment-thousands.$2,100,0031,828,888(a)Excludeseffectof$4,162,000NonrecurringCreditrecordedIn1974.PerCentIncrease(Decrease)08'/o15.314.7(0.3)1.71.1(4.1)(2.1)272,.14.8PennsylvaniaPower&LightCompanyisanelectricutilityprovidingserviceto918,000homesand,businessesovera10,000-square-mileareain29countiesofcentraleasternPennsylvania.PrincipalcitiesinthePP&LserviceareaareAllen-town,Bethlehem,Harrisburg,Hazleton,Lancaster,Scranton,WilliamsportandWilkes-Barre.ContentsPresident'sLetterTheYearInReviewStatistical'SummaryAnalysisofStatementofIncomeSupplementaryCommentsFinancialsNotestoFinancialStatementsDividendsandStockPricesDirectorsandOfficers131112Insert15202726CoverPhoto:ThePP&LlinemanisprobablymorevisibleandtypifiesourCompanymorethananyotherindividual.Today'slineman,withhisup-to-datekitoftoolsandequipmentisalotmoreefficientthanhispredecessorsbackthroughPP&L's55-yearhistory.OnthecoverLinemanFirstClassAlbertMolchan,ofCatasauqua,Isworkingsafelyandcomfortablyatpole-toplevelfromhiselectrically-Insulatedbuckettruck.Heisusingahydraulicpressingtoolonanew,de-energizedlinebeingbuilttoincreasecapacityInaruralsectionofourterritory.Thismodern-daylinemanprovidesquiteacontrasttotheearlylinemanwhoworkedprimarilywithclimbinghooksandhandtools. ToOurShareowners:Recessionandinflationweretheprincipalfocalpointsofpublicconcernin1975.Itwasalsoayearofnon-progressinenergy.EventhoughtheEnergyPolicyandConservationActof1975becamelawatyear-end,thelackofaneffectiveenergypolicycontinuestobeourmostcriticallong-termnationalproblem.Accordingly,thisletterisagaindirectedtothissubject,justasitwaslastyear.Theenergyrecordof1975wasadismalone:importsofforeignoilincreased-naturalgasreservesdecreased-majorareasofenergy-relatedenvironmentalconflictwerenotresolved-therewasnoclear-cutdecisionontheissueofregulation/deregulationofoil/naturalgaspricing-additionaldevelopmentofcoalandnuclearresourcescontinuedtolag-utilitiesannouncedmorecutbacksanddelaysininstallationofnewgeneratingfacilitiesastheirabilitytofinancelargeenergyprojectsremainedindoubt.Overall,anatmosphereofpoliticalambivalenceandexpediencypersisted,asmanycitizensfocusedsostronglyontheproblemsofhigherenergypricesthattheneedtoprovideforfutureenergyrequirementswasoftenshuntedtooneside.Wecannotaffordtocontinueinthisstyle.Ominoussignsarealreadypresent,forthosewillingtoseethem,thatthenationisslippingtowardsanirreversibleenergymess.Weareconfrontedbytherealitythatittakesadecadeormoretobringnewelectricenergyfacilitiesonline.1976istheyearwhenweshouldbestartingtoprovidenewfacilitiesfor1985/1986.Otherwise,millionsofpeoplemaybe"surprised"whenlightsflickerandfactoriesarerequiredtocutbackonworkschedules,10yearshence.Despitethegrowingurgencyoftheenergysituation,thereisnotyetmuchindicationthat1976willdepartfromtheholdingpatternthatmarked1974and1975.Weaboundinproposedremedies,technicaladviceandvoluminousstudies.Butwearestillondeadcenter.Why?Ourinterpretationisthatthevarioussocial,economic,financialandpoliticalpressuresandcounter-pressuresthatunderlietheenergyproblemhaveneutralizedoneanother.Forthemomentatleast,ournationaldecision-makingprocessseemstohavebeenimmobilizedbyabalanceofpoweramongconflictingforcesandbeliefs.Thisstalematereflectstheinchoatestateofpublicunderstandingonenergymatters.Smallwonderthatthissituationexists.Thepublicisrandomlyexposedtoallkindsofinformationandplr,Emisinformationonenergy.Ithasgoodreason,inthispost-Watergateera,tobesuspiciousofbothgovernmentandbusinesspronouncementsandtobeunsettledbytheconflictingassertionsofscientificexperts.Theresultisamishmashofpublicuncertaintyandconfusion.Basicquestionsanddoubtscontinue.Itisessentialthattheyberesolvedbecause,untiltheyare,thelackofdirectionofenergypolicywillcontinue. So,wethinkitisworthwhiletorestatesomeenergyfundamentals,asweseethem-eTheeraofplentiful,low-costenergyisover.~Weshallneedmoreenergy.Dealingonlywithpeoplealreadyborn,we"know"thatin14yearstherewillbeanadditional29millionpeopleofage20andoverinthiscountry.Further,ifwearegoingtoachieveanunemploymentrateof,say,5.5percent,wewillneed20millionmorejobs.Thereisnowayoffeeding,housing,clothing,providingforthehealthcare,employmentandlifestyle-satisfactionsofthismanymoremillionsofpeoplewithoutadditionalsuppliesofenergy.~Thediminishingsupplyandnon-renewablenatureofouroilandnaturalgasresourcesareareality.Wehavetobecomemuchmoreaggressiveinpreparingourselvestoliveinaworldofdecreasingsuppliesofbothformsofenergy.~Weshallhavetomakemoreuseoftheenergymaterialsthatareavailable,particularlyourcoalanduraniumresources.Thesearethemajorenergymaterialsthatwemust,forthetimebeing,relyontoreshapethenation'senergybase.~Furtherdevelopmentofourdomesticoilandnaturalgasresourcesisessential.AdditionalsuppliescouldlessenourdependencyonOPECimportsandprovidemoretimeinwhichtoworkoutanorderlyrestructuringofthenation'senergysupplymix.~Wemustintensifyourenergyconservationefforts.Weshouldconcedethatwehavebeenwastingenergyinthepastandshoulddomuchmoretouseenergywisely.Wehavetooverhaulourutilization-technology,tightenbuildingstandardsandmoderateourenergyconsumptionhabits.Itwillbeastep-by-stepprocess.Wecannotovernightrebuildalltheexistinghomes,buildings,factoriesandtransportsystemsthatarenowinplace.Eventheenergyconsumptionlevelsofnewfacilitieswillreducegradually,becauseofthemomentumofpastdesignsandpractices.~Wemustexpandresearcheffortstodevelopnewmethodsandsourcesofenergysupply.Here,too,progresswillbeastep-by-stepaffair.Dramaticbreakthroughsarenotinsight.Manyappraisaiswarnusnottoexpecttoomuch,toofast.~Inourcomplexandinterdependentworld,energyplanninganddecision-makingrequiretheverybestkindofsystemsmanagementthatwearecapableof.Weneedathoughtfulbalancingofeconomic,socialandenvironmentalneedsandvalues.Andrecognitionthattherearelimitstotherateofchangethatcanbetoleratedwhendealingwithacoreelement,suchasenergy,whichsofundamentallyaffectsourlives.~Oursocietycancopewithhumanproblemsarisingfrominadequateincome,includinginabilitytopurchasebasicenergyrequirements-ifwehaveenergyavailable.Withoutadequateenergy,however,oursocietywillnothavetheproductivecapabilitynecessarytomeethumanneeds.Weappreciatethat'beyondthese"energyfundamentals,"therearemanycomplicatedquestionsofwaysandmeansthatwillhavetobedealtwith.Butfirstthingsfirst.Thesefundamentalsarenotthemselvesaccepted.Iftheywere,wewouldnothavetheproblemswedo.Wemustcontinueintensivereview,discussion,andanalysisuntilpublicopinionrecognizesthatournation'senergycost/supplycrisisisrealandlongterm.Onlythenwillitbepossibletocometogripswiththemanydifficultchangesthatareinvolved,nottheleastofwhichisfacinguptotheheavycostofsupportingtherequirednewinvestmentsinenergyfacilities.Verylittlewillhappenuntilpeoplesetasidetheillusionthatthecomplexenergyproblemsthatconfrontuscanbepainlesslyovercomebysomekindofquickfix.Weaskforourshareowners'elpinsupportingandfacilitatingthediscussionandinformationalprocessnecessarytocreateaclimateformakingthebasicenergychangeoversweneed.Withsuchhelp,andadditionalhelpfromotherinterestedandinformedcitizens,wecanmakethenation'sBicentennialtheyearwhenwefinallygotstartedoutoftheenergyquagmirethatnowenmeshesus.Respectfullysubmitted,~cg/JackK.Busby,PresidentMarch1,1976 THEYEARINREVIEWPP&L's1975pershareearningswereaboutlevelwith1974-eventhoughabout15percentmoreshareswereissuedduringtheyear,reflectingtheincreasedshareownerinvestmentintheCompany.Earningsfor1975were$2.87pershareofcommonstock,downonecentfromthe$2.88earnedin1974.ElectricUseEdgingUpLastyear,wereporteda1974growthrateinkilowatt-hourusageofonlyahalfpercentcomparedtoanaverage1963-73annualgrowthrateofaboutninepercent.Thislevelingoffofusewasattributedtotheenergycrisis,energyconservationeffortsbyourcustomersandthestateoftheeconomy.During1974andearly'75wewereforecastingthatthislevelingoffwasonlytemporaryascustomersimplementedenergyconservationpracticesandadjustedtolivingwithlowerenergyuse.Itwasclear,though,thatpeoplecouldnotgoonloweringthermostatsanadditionalfivedegreeseveryyear.Weexpectedthatanewequilibriumwouldbereachedatsomepointandgrowthwouldresume-althoughataratemuchtemperedbytheinfluenceofhigherenergyprices.Someconfirmationoftheseexpectationswasprovidedbyresidentialandcommercialcustomerswhose1975kilowatt-hourusewashigherthanthepreviousyear.Overallresidentialusagewasupfivepercentfortheyear,reflectingboththeadditionof15,000customersandhigherindividualelectricconsumption.About11,000electricallyheatedhomesandapartmentswereaddedtooursystemin1975,someofwhich,wefeel,reflectsthe"throwovereffect"ofuncertaintyinavailabilityandpriceinthenaturalgasandoilmarket.Commercialusageshowedthegreatestgainofallourclassificationswithasevenpercentincreaseover1974.Industrialusewasmoresensitivetothegeneralslowdownoftheeconomyanddroppedtwopercent.Helddownbythedecreaseintheindustrialclassification,totaluseofelectricenergyincreasedbyonly150millionkilowatt-hoursin1975-anoverallincreaseofaboutonepercent.Althoughoverallusewasupslightly,thewinterpeakdemandforelectricityincreasedaboutninepercentfrom1974to1975.Aboutathirdofthatgrowthwasattributabletocolderweather.Therestcamefromincreasedcustomeruse.RevenuesUpRevenuesfor1975were$544million,anincreaseof15.3percentfrom1974.Althoughpartoftheincreaseinrevenuescamefromhigherresidentialandcommercialuse,mostcamefromtherecoveryv)jSet,>jl'()rg)AwelderJoinssectionsofstainlesssteelsteamseparatorsatoponeofthereactorcoresattheCompany'sSusquehannanuclearplantunderconstructionnearBerwick.Theseparatorsremovewaterfromsteamleavingthereactorbeforethesteamreachestheturbine-generatorunits. ofincreasedfuelcoststhroughthefueladjustmentcharge.(Althoughtherateofincreaseinfuelcostsmoderatedduring1975,theaveragecostoffuelconsumedwashigherthanduring1974.Thisresultedinhigherfueladjustmentrevenues.Recoveryofthesehigherfuelcostsaccountedforabout77percentoftheincreaseinrevenues.)ArateincreaseallowedtogointoeffectinSeptember,providedabout$5millioninadditionalrevenues.CostsUpAlsoTheriseinrevenueswasmatchedbyincreasedcosts.Totaloperatingexpenseswereup$66millionover1974,anincreaseofabout19percent.Thisfigurewouldhavebeenevenhigherwithoutthe$64millionincreaseover1974ininterchangehkpowersaleswhich,inkeepingwithregulatoryrequirements,areclassifiedasareductionofexpensesratherthanasrevenues.Muchoftheincreaseinexpensesreflectsthehigheraveragecostforthefuelburnedtogenerateelectricityin1975comparedto1974.Our1975fuelbillamountedto$272millionversus$192millionthepreviousyear.RateIncreaseProceedingsArateincreaserequestfiledbyPPBLinMarch1975hadstillnotcometoafinaldecisionbythedateofthisreport.StillpendingisourapplicationtothePennsylvaniaPublicUtilityCommission(PUC)foratwo-step,$80-millionincreaseinrevenues.Thefirststepoftherequestamountedtofourpercent,orabout$22millionannually.Thesecondstepwasforanadditional11percent,orabout$58millionayear.WehadaskedthatthefirststepbecomeeffectiveinJunewhilerecognizingthatthelargersecondstepwouldprobablybesuspendedforfurtherstudy.InJune,thePUCsuspendedbothstepsoftheproposalbecauseofconcernaboutthatpartoftheraterequestwhichprovidedfornoincreaseforthefirst200kilowatthoursofusebyresidentialcustomers.Thisproposal,oftenreferredtoas"lifelinerates,"wasdesignedtorecognizesomeoftheinflationproblemsfacedbylow-incomepeopleandtheelderly.Werefiledthefirststepafterremovingthelifelinefeature.Then,whenthePUCdidnotsuspendtherevisedfiling,itbecameeffectiveonSept.13subjecttopossiblerefundpendingfinalPUCaction.ExtensivetestimonywaspresentedbytheCompanyonbothpartsoftheproposedincreaseatpublichearingswhichconcludedinJanuary1976.NofinalPUCactionisexpectedbeforelateMarch1976.IUManyPP8Lwomennowholdpositionstraditionallyheldbymen.CynthiaWilliams,ofAllentown,isoneofseveralyoungwomenwhohavetakendraftingcoursesandqualifiedforworkasadraftsmanIntheCompany'sengineeringdepartment.PP&Lalsohaswomenworkingasengineers,handymenandinotherpositionsconsidered,untilrecently,inthemaledomaIn. ConstructionDollarsinRatesPP&Lmustpayinterestanddividendsonthesecuritiesitsellstofinancetheconstructionoffacilities(constructionworkinprogress).However,underpresentregulatoryproceduresinPennsylvania,theCompanycannotchargecustomersforthesecostsuntilthefacilitiesarecompletedandarebeingusedtoprovideservicetocustomers.Duringtheconstructionofapowerplant,whichnowtakesabout10years,theCompanyhastopaymillionsofdollarsininterestanddividendstoinvestorswhoprovidethemajorportionoffundsnecessarytofinancetheconstructionofthefacility.Interestanddividendpaymentsareaone-waystreetduringtheconstructionperiodsincetheCompanymustpayforthesecosts,butcannotbegintoincludetheminthecostofservicepaidbycustomersuntiltheplantiscompleted.ThissituationresultsinacashdrainontheCompanyatatimewhenitmustraiseunprecedentedamountsofmoneytopayfortheconstructionoffacilitiestoprovidefortheincreasingpowerneedsofcustomers.ItisforthisreasonthatwehaverequestedthePUCtoallow$50millionofconstructionworkinprogresstobeincludedinsettingratesinourcurrentratefiling.Ifapproved,weexpecttoincreasethisamountinanorderlystep-by-stepprocessinfutureratefilings.ThiswillenabletheCompanytostrengthenitscashpositionwhichisessentialtothefinancingofnewcustomerservicefacilities.Thisapproachshouldprovideforamoregradualandevenwayofhandlingtheincreasesinelectricratesmadenecessarybytheadditionofsuchfacilities.NewAcquisitionAsaresultofnegotiationsinitiatedbyHersheyEstates,corporateparentofHersheyElectricCompany(HEC),PP&Lhasagreedtoacquireallofthatutility'scapitalstock.Thetotalacquisitioncost,includingtherepaymentofdebtobligations,willbeapproximately$8million.IfwereceiveregulatoryapprovalfortheacquisitionweplantoeventuallymergeHECintoourCompany.HECpresentlybuystheenergytoservethe5,500homesandbusinessesinits28-square-mileterritoryfromMetropolitanEdisonCo.1976ConstructionBudgetTheCompany'sconstructionbudgetforthenextfiveyearsremainsessentiallyunchangedfromlastyear'sfigureatnearly$2.1billion.For1976thefigureisabout$390millioncomparedto$345millionspentin1975.Thelargestpartofthe1976budget,$242million,goestowardconstructionofournuclearplant.Another$39milliongoestowardcompletionoftheMartinsCreekoil-firedUnit4,and$20millionisallocatedprincipallyforworkatexistinggeneratingstations.Thebudgetforelectrictransmissionfacilitiesis$17millionandfordistributionandotherfacilitiesitis$72million.SusquehannaNuclearPlantProgressonconstructionofPP&L's$1.7-billionnuclearplantnearBerwickcontinuedduring1975-althoughhamperedbyasix-week-longregionaloperatingengineers'trike.Unit1,scheduledforoperationinlate1980,was21percentcompleteatyear-end.Unit2progressstoodatsixpercentofcompletion.Bothwillbeboilingwaterreactorgeneratingunitsandeachwillhavea1,050,000-kilowattcapacity.PP&LandAlleghenyElectricCooperativearecurrentlyengagedinnegotiationswhich,ifagreementisreached,wouldresultinAlleghenyacquiringa10percentownershipofSusquehanna.Negotiationsarealsounderwayonalong-termagreementforUGICorporation'sLuzerneElectricDivisiontopurchaseaportionoftheoutputofPP&L'sSusquehannaplantandMartinsCreekoilunits.Thetotalamounttheypurchasewillincreasegradually,reaching3.8percentofSusquehannaand4.9percentoftheMartinsCreekunitsby1983(about40,000-kilowattsfromeachofthefourunits)andwillcontinueatthatleveluntiltheunitsareretired.MartinsCreekOilUnitsPP&L'sgeneratingcapabilityincreasedby820,000kilowattswhenthelargeoil-firedUnit3atourMartinsCreekplantwentintocommercialoperationonOct.15. ThisnewadditionisunlikeanyotherPP&Lgeneratingunit.Insteadofburningcoaltomakesteam,asourotherlargegeneratingunitsdo,Unit3isdesignedtoburneithercrudeorresidualoil.Theunit'sdesignandoperatingcharacteristicsallowittobe"cycled"muchfasterthanacoalunit.Thatis,itcangofrompartial-loadcapacitytofull-loadcapacityandbackagainrelativelyquickly,thusenablingittopickupordroploadtomeetfluctuatingdemand.Infactwehavefrequentlybeenshuttingtheunitdown'completelyatnightandbringingitbackintouseinthemorning,astheneedforpowerincreased.Theavailabilityofthislarge,efficientload-followingunitlessensourdependenceonsmaller,expensive-to-operatecombustionturbineswhichburnaproductverymuchlikehome-heatingoil.Unit4,atwinofUnit3,isexpectedtobecompletedinlate1976andincommercialusein1977.OilPipelineThecompletionofthelong-delayedpipelinetoservetheMartinsCreekoilunitsisatlastinsight.ConstructionfinallybeganonthepipelineinMayafteralmosttwoyearsofcostlydelays.Themultitudeofhearingsthatwereheldonthepipelinehadpostponedconstructionseveraltimes.Theoriginalschedulecalledforthepipelinetobeoperatingandreadyforthestart-upofUnit3lastyear.ThedelaysforcedtheCompanytoturntotemporaryrailtransportationofoilfortheunits.Althoughthepipelineitselfisintheground,terminalarrangementsatMarcusHook,belowPhiladelphia,mustbecompletedbeforeoilcanflowtoMartinsCreek.BituminousCoalDespiteourdiversificationintooilandnuclearunits,coalisstillPP&L'sprimaryenergysourceandwecontinuedacquisitionoffuturesuppliesduring1975.During1974and1975PP&Lformedtwosubsidiarycoalcompanies,GreeneHillCoalCo.andGreeneManorCoalCo.,whichacquiredabout65,000acresofbituminouscoalrightsinGreeneCountyinsouthwestPennsylvania.Thisaddedabout325milliontonstoPP&L'sestimatedrecoverablereservesofcoal.Ifdeveloped,thiswouldbeenough,whenaddedtotheapproximately85milliontonsofreserveswearealreadymining,toassureastablebituminouscoalsupplyformanydecadestocome.However,it'salongwaybetweenhavingthereservesandactuallygettingthecoaloutoftheground.Largecapitalinvestmentsareneededtoopenanewmine.WehaveaskedthePUCtograntusratesthatwillcoverthefinancialcarryingcostsofthereserves.WefeelthatourdevelopmentofnewminesintheGreeneCountyareawouldbeinthebestlong-terminterestofourcustomersbuttheultimatedecisiononwhetherwewillhavethefinancialcapabilitytodoitrestswiththePUC.Besidesowningthecoal,wealreadyhaveacost-savingwaytogetittotheplants.PP&Lhasbeenapioneerinoperatingitsowncoaltrainssincetheearly'60s.OureighthunittrainwasputintoserviceinJulybringingourfleetuptoatotalof892railroadhoppercars.Theninthunittrainisonorder.AnthraciteStudyInOctober,aftermorethan20years'ependenceonbituminouscoalasitsprimaryfuel,theCompanyannouncedplanstoexplorethefeasibilityofbuildingananthracite-burninggeneratingstationnearanthracitefieldslocatedintheCompany'sservicearea.BeforeandduringWorldWarli,PP&Lwastheworld'slargestuserofanthracitewhenweburnedthe"fines"or"silt"coalthatwasleftoverintheprocessofpreparinglargersizesforthehomeheatingmarket.Whenhomeuseofcoaldeclinedintheearly1950s,thevolumeoffinesdiminishedandPP&Lcouldnotaffordtobuyexpensive,fresh-minedanthraciteforgeneratinguse.So,weturnedtobituminouscoalasourprincipalfuel.Now,however,sulfur-emissionregulationscanaddmanymillionsofdollarstothecostofnewbituminous-coal-burningplants.Sinceanthraciteismuchlowerinsulfurcontentthanbituminouscoal, wecouldpossiblyavoidthecostofsulfur-emissioncontrolequipmentandtheassociatedoperatingproblemswhichcanadverselyaffecttheon-linetimeoffutureplants.This,combinedwithlowertransportationcosts,sinceweareliterallyontopofthecountry'smajoranthracitefields,possiblycouldmakefresh-minedanthraciteapracticalandeconomicalternative.Theyear-longstudyshouldgiveustheinformationweneedbeforewemakeafuelcommitmentforadditionalgeneratingcapacitythatforecastsnowshowmaybeneededbythemid-80s.Forstudypurposes,theCompanyvisualizesaplantcapacityof1.6millionkilowattsmadeupoffourunitsof400,000kilowattseach.Thiswouldmeanapotentialneedforuptofourmilliontonsofanthraciteayear.BigFinancingYear1975wasthelargestfinancingyearintheCompany'shistorywith$353millionofsecuritiessold.Partofour1975borrowingswereusedtorefund$93millionofmaturing30-yearfirstmortgagebondswhichhadathreepercentinterestrate.Wehadtoreplacethemwith9%percentbonds-asharpexampleoftheeffectsofinflation.Itisnoteworthyalsothatthe$93millionbondissuewastheentiresecureddebtoftheCompanyin1945.Thiscompareswithmorethan$1billionofoutstandingfirstmortgagebondsattheendof1975.Weanticipatethatourfinancingneedsfor1976willbeabout$276milliontomeetconstructionexpendituresandtorefund$11millionofmaturingdebt.WeareencouragedbytheacceptanceoftheCompany-administereddividendreinvestmentplanwhichbeganinApril1975.About$2.5millionofcommon,preferredandpreferencedividendswasreinvestedinnewcommonstockandanother$3millionofcommonwasboughtthroughoptionalcashpaymentsandemployeepayrolldeductions.ArevisedreinvestmentplanwasintroducedinDecemberwithafivepercentdiscountoncommonstockboughtwithreinvestedpreferred,preferenceandcommondividends.CapitalizationMilestoneThefinancingduring1975broughttotalcapitalinvestedintheCompany-fundsprovidedbycommon,preferredandpreferenceshareowners,earningsreinvested,short-termandlong-termdebt-pastthe$2-billionmark.Wereachedthe$1billionpointin1970,after50yearsinbusiness.Thatsecondbilliontookfiveyears.-.fgMarvinWiegandt,ofAllentown,aPP&Lsurveyorusesanelectronicdistancemeasuringdeviceonafieldassignment.Theinstrumentrecordsthetimeittakesforalightbeamtotraveltoitstargetandback.ItthenconvertsthistimetodistanceInaminiaturecomputerthatgivesadigitalread-outin10seconds.ThedeviceisespeciallyusefulacrossbodiesofwaterorfromhilltohillandIsjustoneofthewaysweareseekingto"worksmarter."~~((4, OperationUnderstandingPresidentJackK.Busby's15-month-longOperationUnderstandingodysseythroughouttheCompany's10,000-square-mileterritoryendedinDecember1975.Duringthatperiod,Busbyspentabout25percentofhistimegatheringviewpoints,listeningandspeakingtoemployees,retirees,thenewsmedia,anddiverseconsumer,business,educationalandcitizengroups,mostofwhomarealsocustomers.Thetravelscoveredwellover8,000mileswithaudiencestotalingover10,000peopleinmorethan350separatemeetings.YearOfTheAuditNinemajorauditsorstudiesofvariousaspectsofouroperationswereundertakenin1975.MostwereinitiatedbyPP8Landcenteredaroundareassuchas:coalminingefficiency;applicationoffueladjustmentcharge;andourfuelprocurementpractices.ThelargestwasastudyofouroveralloperationaleffectivenessbyMcKinsey&Co.,amanagementconsultingfirm.Wewerestillawaitingfinalresultsatthedateofthisreport.SitingStudyAuniquefacilitiessitingprojectwaslaunchednearHarrisburgduring1975.TheCompanyinvitedarearesidentstoformacitizens'askforcetogiveustheirsuggestionsandtogivethemavoiceindecidingwherevitalsubstationsandelectricaltransmissionfacilitieswillbelocated.Theresultsofthisexperimentincitizenparticipationshouldhelpusindevelopingfuturesitingandland-usepolicies.EnergyConservationOverthelasttwoyearswereportedtoyouontheconstructionandoperationofourexperimentalsolar-supplementenergyconservationhomenearSchnecksville,northwestofAllentown.Severalvaluableconclusionscanbedrawnfromtheexperiment.Thehomeprovedthere'salongwaytogobeforehomeswithsolarheatingandcoolingsystemswillbewithinreachoftheaverageAmericanfamily.Thetechnologyisavailablebutthecostofbuyingandinstallingthenecessaryequipmentisprohibitive.However,wefoundthatwitharathermodestadditionalnew-homeinvestmentof$500-$1,000forfoamedinsulationarounddoorsandwindows,polystyrenesheathing,extra-heavyinsulationandtriple-glazedwindowsitwaspossibletocutheat-lossbyalmosthalfcomparedwiththetraditionalwell-insulatedhome.AsanoutgrowthoftheexperimentalhomeprojecttheCompanynowiscooperatingwithhome-buildingcontractorsinitsfivedivisionsinaspecialenergy-savingBicentennialHomesProject.Thefivehomes,whichwillincludethelatestenergy-savingheatingandcoolingsystems,andbetterinsulatingqualities,arebeingbuiltbylocalcontractorsattheirexpensewiththeCompanyprovidingfundsforenergyconservationequipment,includingsolardevices.Thehomeswillbeopenforpublicinspectionduringthesummerof1976andsoldinthefall.Agreementscallforthebuilderstomaintainmeteringequipmentinthehomeforoneyearaftertheyaresoldinordertodeterminetheeffectivenessoftheequipment.TheCompanycontinuedandexpandeditsformalprogramstoencourageenergyconservationbyourcustomers.Sixday-longenergymanagementseminarswereheldthroughouttheCompany'sserviceareabringingtogetherbusinessleaders,governmentofficialsandPP8Lenergyconservationspecialistsforanintensiveinformationexchange.Atwo-dayEnergyDesignForumwasheldformorethan200architectsandengineersinSeptember.Itwasanopportunitytoexchangeideasonthelatestwaystodesignbuildingsusingheating,ventilatingandairconditioningsystemsthatrequirelessenergywhilestillremainingfunctional.Acrossourserviceareanearly700energymanagementteamshavebeensetupwithCompanyassistanceinalltypesofindustriesandbusinesses.Wearealsotakingagoodlookatourownoperations.Energymanagementteamshavebeenestablished tomonitorandimproveenergyuseinoffices,crewquartersandgeneratingstations.,Asanadditionalincentive,andtopublicizeparticularlysuccessfulefforts,PP&Lhaspresentedanumberofenergymanagementawardstoindustrialandcommercialcustomerswhohavemadesignificantchangestoreduceelectricaldemandandenergyuse.AreaBusinessDownForthefirsttimeinrecenthistoryPP&L'sservicearealostmoreindustrythanitgainedduringthecalendaryear.Thismeantthatinour10,000-square-mileserviceareawehadanetlossof1,885industryjobsin1975comparedtoagainof1,923in1974.Theunemploymentratewasupto7.4percentcomparedto4.7percentayearago.Atyear-end,morethan100buildingswereavailableforindustrialoccupancy.RecognizingthatPP8L'sownfutureistiedcloselywithconditionsinourservicearea,wewilldowhatwecantorestoreareaeconomichealth.Inadditiontocontinuingitsestablishedprogramofindustrialdevelopment,theCompanywillplacespecialemphasisonaselectiveandintensiveprogramofadvertisinganddirectmailin1976inanefforttobringnewjobstqareaswithparticularlysevereunemploymentrates.Ourgoalistohelpbringunemploymentdowntothenationalgoaloffivepercent.ResearchOneofthemorecreativeandinterestingresearchprojectsPP&Lengagedinduring1975wastheexperimentalburningof50tonsofpelletizedmunicipalsolidwaste(trash)atourSunburyplantinMay.Theexperimentcenteredaroundaclean,pelletizedfuelmadefromthecombustibleproductsfoundinordinarytrashaftertheglass,metalandotherunburnableshavebeenremoved.Resultsshowthatthewastecanbeburnedsatisfactorilywhenmixedwithcoal,eventhoughtheheatingvalueismuchlower.Therearemanyproblemstobeironedoutbeforethisfuelcouldbeusedonaregularbasis.Thebiggestoftheproblemsisthatnolarge-scalemunicipalfacilitiesareavailabletomanufacturethepellets.Also,thecostofre-equippingpowerplantstohandlethismaterialcouldprovetobeprohibitive.OnalargerscalePP&Lcontinuestohelpfundindustry-wideelectricresearchprojectsthroughEPRI(ElectricPowerResearchInstitute).For1975ourdollarcommitmenttoEPRIresearchwasabout$1.3million.Another$360,000wenttowardtheliquidmetalfastbreederreactorproject,tobebuiltinTennessee,while$645,000wenttootherresearchprogramsduring1975.For1976ourtotalresearchbudget,is$2.7million.InjustthethreeyearsofEPRI'soperationtheelectricindustry'scommitmenttotheresearchorganizationhasgrownto$160millionin1976.InmanyareastheEPRIprogramsarecloselycoordinatedwiththoseofthenewly-formedfederalEnergyResearchandDevelopmentAdministration(ERDA)whichnowhasa$3.6-billion-a-yearbudget.CostReductionContinuesInresponsetothepressuresofinflation,theCompanyhasbeeninvolvedinamajorcostreductionprogramsincemid-1974.Becauseofthedownturninthenationaleconomy,andthesubstantialslowdowninelectricloadgrowth,PP&Lreduceditstransmissionanddistributionconstructionactivityin1974and1975.Recentinflationaryeffectsoncostsofmaterials,suppliesandwageshavealsoledustocutbackinotherareasofouroperations.Asfaraspersonnelcutbacksareconcerned,sofarwe'ebeenabletomatchourworkforcewithourworkloadmainlythroughattrition(resignations,retirements,etc.).Inmanycasesthisattritionapproachwasmadepossiblebycooperativemanagement/unionprogramstotransferemployeestonewworklocations.Outsidecontractinghasbeenrestrictedandusedonlywherespecialskillsmakeitnecessary,andtotreetrimmingandbuildingmaintenance.Wewillcontinuetoholdnewhirestoaminimum.Atyear-endtheCompanyhadfeweremployeesthanin1972eventhoughwegenerated34percentmoreenergyandserved53,000morecustomers. ManagementChangesAnumberofmanagementchangestookplacein1975.DirectorMauriceWarnock,chairmanoftheboardofArmstrongCorkCompanyinLancaster,retiredfromthePP'&LboardinAprilundertheage-relatedguidelinessetforthforallPP&Ldirectors.HehadservedPP&LsinceJanuary1964.NamedtosucceedWarnockwasHarryJensen,anexecutivevicepresidentanddirectorofArmstrongCork.Jensenwaselectedbytheshareownersattheannualmeeting.BrookeHartman,PP&L'sexecutivevicepresident-Operations,andaCompanydirector,agreedtoaboardrequesttoextendhisDec.1retirementdateuntilmid-1977.RobertFortune,vicepresident-Financial,waspromotedtoexecutivevicepresident-FinancialandnamedaCompanydirectoreffectiveDec.1.BothofthesenewmoveswereaimedatmaintainingandstrengtheningPP&L'stopmanagement.DirectorHaywardWills,chairmanoftheboardandpresidentofGACCorp.,CoralGables,Fla.,submittedhisresignationfromthePP&LboardonDec.17.HarryJensenreplacedWillsasamemberoftheexecutivecommitteeoftheboard.EffectiveDec.1theboardcreatedanewFinanceDivisionandappointedJosephDonnellytothepositionofvicepresident-Financetoheadtheunit.ComptrollerGeorgeVandersjicewasnamedvicepresidentandcomptroller,alsoeffectiveDec.1.OneofthefinalsectionsofpipeisweldedintoplaceInlateOctoberonthe84-mllepipelinewhichwillcarryoiltoourMartlnsCreekplant.ThelineIsreputedtobethelongestinsulatedpipelineInthecountry.The$55-million-dollarprojectwasbeguninMayafterseveralcostlydelays.TheCompanyIstemporarilyusingrailroaddeliveryuntilthepipelineisinoperation.i,gpQ+Wk4(4*Qy STATISTICALSUMMARYCAPITALINVESTMENT-thousands(a)Long-termdebt(includingamountduewithinoneyear)Preferredandpreferencestock..........CommonequityShort-termdebtTotalcapitalinvestment...................FINANCIALDATAReturnonaveragecapitalinvestment-o/ot(b).Returnonaveragecommonequity-/o(b)..CommonstockdataBookvalue(a)(b)Dividendpayoutrate-'/o(b)Dividendyield-'/o(c)...................Priceearningsratio(b)(c)..............Timesinterestearned(b)BeforeincometaxexpenseAfterincometaxexpense...............NUMBEROFSHAREOWNERS-preferred,preferenceandcommon(a).....OPERATIONSELECTRICCUSTOMERS(a)................ENERGYSALES-millionsofkwhResidential.Commercial.IndustrialOther1975$1,043,946366,375616,0522,026,37373,630$2,100,0038.812.5$23.17639.16.92.802.31171,766917,9206,8184,5757,02070019,1131974914,349296,375532,6551,743,37985,5091,828,8888.512.622.916211.55.32.922.36154,126902,1486,4944,2757,1701,02418,9631973753,027271,375469,6081,494,01039,8511,533,8617.911.922.51648.47.63.152.42142,235886,3786,3244,2626,8811,39818,8651972635,044231,375412,1301,278,54996,4821,375,0317.511.621.78676.510.33.052.43135,399864,4395,9853,9336,45863717,0131971576,760196,375351,2991,124,43476,2511,200,6857.412.220.78666.410.22.772.41123,598843,0805,4793,5336,05362015,685AVERAGEPRICEPERKWHtoallcustomers-cents................SOURCESOFENERGY-millionsofkwhGeneratedCoal-firedsteamstationsOil-firedsteamstation...............Combustionturbinesanddiesels.....HydroelectricstationsPowerpurchases.Total2.7825,3841,149848592,24129,7172.4424,1862477721.57026,7752.0024,7822738161,96827,8391.991.876018241,78422,3066426841,77118,94419,09715,847DISPOSITIONOFENERGY-millionsofkwhEnergysalestocustomers................Interchangepowersales..................CompanyusesandlinelossesTotalFUELCOST-millsperkwh.................POWERCAPABILITY-kilowatts(a).........PEAKDEMAND-kilowatts(d)EMPLOYEES(a)19,1138,7571,84729,71710.45,717,0004,122,0006,69518,9636,0791,73326,7758.84,901,0003,772,0006,93018,8657,2371,73727,8395.04,903,0003,662,0007,13917,0133,5861,70722,3064.94,108,0003,598,0006,79015,6851,7581,50118,9444.83,496,0003,294,0006,514(a)Year-end.(b)ReflectsretroactiveallocationtoprioryearsofNonrecurringCreditrecordedin1974relatedtochangeinaccountingforfuelcosts.(c)Basedonyear-endmarketprice.(d)Winterpeakshownwasreachedearlyinsubsequentyear. ANALYSISOFSTATEMENTOFINCOMEThefollowinganalysisoftheCompany'sfinancialperformanceexplainsthereasonsforchangesinspe-cificitemsontheStatementofIncomecomparingtheyears1975to1974and1974to1973.OperatingRevenuesTheincreaseor(decrease)inoperatingrevenuesfromtheprioryearisattributabletothefollowing:19751974MillionsofDollarsElectricrevenuesQuantityofsalesto:Ultimatecustomers...OthersforresaleRateincreasesFueladjustmentclausesOtherSteamrevenuesTotal......$12.87.8(60)(19)7.422.255.355.41.61.971.185.41.01.8$72.187.2MonthlyFuelAdjustmentCharge6CentsPerKwh197319741975Theaboveshowstheincrementalcostoffueloverabaseamountofabout0.36centsperkwh,whichisbilledtocustomersundertheCompany'sprincipalfueladjust-mentclause.CustomerSalesandOperatingRevenuesTheCompanyderivesabout99%ofitsoperatingrevenuesfromsupplyingelectricserviceandthebal-ancefromsupplyingsteamforheatingandotherpurposesinthecityofHarrisburg,Pa.RatesapplicabletosalestoultimatecustomersareregulatedbythePennsylvaniaPublicUtilityCommis-sion(PUC)andaccountedfor98%oftheCompany'srevenuefromenergysalesin1975.TheFederalPowerCommission(FPC)regulatessalestoothersforresale.TheCompany'selectricenergysalestoultimatecustomersincreased2.8%in1974and2.6%in1975.In1975therewasanincreaseof5.0%inresidentialsalesand7.0%incommercialsaleswhilesalestoindustrialcustomersdecreased2.1%.ThedecreaseinindustrialsaleswasmoderatedbyafullyearofsalestotheSteeltonPlantofBethlehemSteelCorporationwhichwasaddedasacustomerinmid-1974.ExcludingsalestotheSteeltonPlant,theCompany'soverallsalesgrowthtoultimatecustomerswouldhavebeen0.7%inboth1974and1975andindustrialsaleswouldhavedecreasedby7.3%in1975,reflectingthedeclineinindustrialeconomicactivityandalossof96industrialcustomers.Electricenergysoldtoothersforresaleduringthetwoyearsremainedrelativelyconstantexceptforcontractualsalestoaneighboringutility,MetropolitanEdisonCompany(MetEd).During1974,340millionkwhweresoldtoMetEd,resultinginrevenuesof$6.1million.TherewerenosalestoMetEdin1975.RateincreasesaffectingultimatecustomersbecameeffectiveinJune1973($10millionannually),January1974($19millionannually),andSeptember1975($21.7millionannually,ofwhichabout$4.9millionisincludedinrevenuesfortheyear1975).FormoreinformationconcerningtheCompany'scurrentrateincreasefilingseeNote2toFinancialStatements.TheCompany'stariffsincludefueladjustmentclauseswhichadjustpricesforelectricserviceforvariationsinthecostoffuelusedtogenerateelec-tricity.Revenuesfromthefueladjustmentclausestotaled$792millionin1974and$1345millionin1975,principallyreflectingtheincreasedleveloffuelcostsexperiencedbytheCompany.12 InterchangePowerSales-ThetotalelectricenergyavailableforsalesincludesenergygeneratedbyPP&Lplantsandpowerpur-chasedfromothers,afterdeductingCompanyusesandlinelosses.During1975and1974,approximately31%and24%,respectively,ofthetotalenergyavailablewassoldtootherutilitiesunderinterconnectionarrangements.AsrequiredbyboththePUCandFPC,suchsalesarenotrecordedasOperatingRevenuesbutarecreditedtoOperatingExpensesontheState-mentofIncome.Thequantityofinterchangepowersoldincreasedduring1975duetogreateravailabilityofgeneratingunits,includingtheadditionofMartinsCreekUnitNo.3,theabsenceofcontractualsalestoMetEdduring1975andtherelativelyfavorablepriceofPP&L'sgeneratingcostscomparedtothatofotherinterconnectedcompanies.Thepricereceivedforinterchangepowersalesistoagreatmeasurebasedonarelationshipofthefuelcostsofthesellingandbuyingutilities.Approximately92%oftheCompany'sgenerationduring1975camefromcoal-firedunitswhileotherinterconnectedutilitieshadsignificantamountsofoil-firedgenerat-ingcapacity.Fortheperiodbeginninginlate1973andcontinuingthrough1974,oilpricesincreasedmuchmorerapidlythancoalprices,whichgreatlyincreasedthepricetheCompanyreceivedfbrinterchangedpowerduring1974.Interchangepricescontinuedtorisein1975butatamoremoderaterate.TheaveragepricetheCompanyreceivedforinter-changepowersaleswas1.97centsperkwhin1975,1.76centsperkwhin1974and0.95centsperkwhin1973.TheseamountsweresubstantiallyinexcessoftheCompany'saveragefuelcosts.FuelThecostoffuelsburnedperkwhgeneratedincreasedduring1974from0.67centsperkwhinJanuary1974,to1.06centsperkwhinDecember1974.During1975theunitcostoffuelsburnedincreasedto1.15centsperkwhbyDecember1975reflectinginpartthehighercostofoilburnedattheMartinsCreekNo.3generatingunitplacedinserviceduringOctober1975.Theaverageunitcostduring1975was1.04centsperkwhcomparedto0.88centsperkwhin1974,anincreaseof18%.Thecostoffuelburnedwhichisrecoverablethroughfueladjustmentclausesisdeferreduntiltheperiodinwhichsuchcostsarebilledtocustomers.TaxesForadetailedanalysisofincometaxcomponents,effectiveincometaxratesandcomponentsoftaxesotherthanincomeseeNote6toFinancialStatements.InterchangeSalesTheincreaseor(decrease)ininterchangepowersalesfromtheprioryearisattributabletothefollowing:19751974MillionsofDollars$47.2(11.0)18.449.3(1.5)0.2$64.138.5CostoffuelconsumedElectricSteamheat........~..Totalcostoffuelconsumed........IncreaseinfuelcostsdeferredtomatchrevenuesfromfueladjustmentclausesTotalfuelexpense..$269.2215.2123.84.03.81.8273.2219.0125.6(1.6)(26.6)$271.6192.4125.6CostofFuelConsumedTheincreaseor(decrease)fromtheprioryearinthetotalcostoffuelconsumedisattributabletothefollowing:19751974MillionsofDollarsElectricQuantityofelectricitygenerated..........Averagecostoffuelsburned.............SteamheatTotal.$13.340.754.00.2$54.2(0.9)92.391.42.093.4FuelExpenseFuelexpenseasshownontheStatementofIncomeincludesthefollowing:197519741973MillionsofDollars WagesandEmployeeBenefitsandOtherOperatingCostsTheincreasesinwagesandemployeebenefitsandotheroperatingcostssuchasmaterialsandsupplies,rentsandinsurancereflectprincipallytheeffectsofinflation.Athree-monthstrikeinvolvingapproximately5,000unionemployees(about70%oftheCompany'stotalworkforce)increased1974operatingexpensesbyapproximately$2.0millionaftergivingeffecttorelatedincometaxreductions.$2.0NetUtilityPlant-EndQfYearBillionsofDollars$2.0DepreclatlonIncreaseddepreciationexpenseinboth1974and1975isduetonewfacilitiesplacedinservice,includingtheadditionoftheCompany'sMartinsCreekNo.3generatingunitin1975.1.51.01.51.0AllowanceforFundsUsedDuringConstructionTheallowanceforfundsusedduringconstructionhasincreasedsubstantiallyduringthepasttwoyearsasaresultoftheCompany'sextensiveconstructionprogramandtherelatedcarryingcostsofsecuritiesissuedtofinancetheconstructionexpenditures.Dur-ing1975and1974theaverageratesusedtocomputetheallowancewereequivalenttoeffectiverates.of8.3%and7.2%,respectively.CostofFinancingTheincreaseinlong-termdebtinterestchargesanddividendsonPreferredandPreferenceStockisduetoissuanceofnewsecuritiestofinancetheconstructionofnewfacilitiesandtherefinancingofmaturingdebtwithsecuritiesbearinghigherinterestrates.During1974and1975,newissuesofsecuritiesincluded$405millionoflong-termdebtand$95millionofPreferredandPreferenceStock.Theannualinterestanddividendrequirementsonlong-termdebtandPreferredandPreferenceStockoutstandingatDecember31,1975were$79.6millionand$29.6million,respectively.Bankloansandcommercialpapernotesareusedtoprovideworkingcapitalandinterimconstructionfinancing.Interestonsuchdebtvariesfromyeartoyearduetotheamountofshort-termdebtoutstandingandtheinterestratesineffect.Formoreinformationonshort-termdebtseeNote4toFinancialStatements.TheCompanysold2.2millionsharesofCommonStockduring1974and3.3millionsharesin1975.0.50.5InterestandDividendCostTheincreaseor(decrease)fromtheprioryearininterestchargesanddividendsonPreferredandPreferenceStockwere:19751974MillionsofDollarsInterestchargesLong-termdebt...........Short-termdebtOther.Dividendsonpreferredandpreferencestock$16.87.9(3.3)4.8(0.2)0.24.92.5197319741975~NetPlant1nService-originalcostoffacilitiesservingcustomerslessaccumulateddepreciation.ConstructionWorkinProgress-costoffacilitiesunderconstructionandnotyetinservice. SUPPLEMENTARYCOMMENTSTOANNUALREPORTManyoftheresultsshownintheAnnualReporttoShareownersinvolvecomplexfinancialandlegalconcepts.Oftenthetraditionallanguageusedistechnicalandunfamiliar.Howthendoyoumakethereportmoreunderstandablewhilestillcomplyingwithreportingrequirements?Thesesupplementarypagesrepresentanefforttomakethereportmoremeaningfultothereader.Detailandprecisionhavebeensacrificedforthesakeofbrevity.Wewelcomeyourcomments.TheAnnualReportWhatisit?Whyisitpublished?Whatcanyoufindinit?Theseareallnaturalandbasicquestions.First,theCompanyislegallyrequiredtoprovideitsshareownerswithanannualreportontheoperationsoftheCompany,butitismorethanjustanaccountingoffinancialstewardshipfortheyear.Itisanopportunitytolookatperformance,objectives,opportunitiesand,ingeneral,thecorporatepersonalityofacompany.Theaudiencefortheannualreportistheworldinwhichacompanyoperates.Inadditiontoshareowners,thatworldincludesPP8Lemployeesandretirees,customers,suppliers,governmentandregulatoryofficials,financialanalysts,citizensofcommunitieswheretheCompanydoesbusiness,potentialinvestorsandmanyothers.HighlightsOperatinghighlights(insidecover)givethereaderaquicklookatbasicstatisticsabouttheCompany.ThePresident'sLetterThisyearinhisletter(pages1and2),JackBusby,theCompany'schiefexecutiveofficer,presentsabroadreviewofnationalenergyproblemsandcitestheneedforpromptaction.TheYearInReviewThissection(pages3through10)discussesPP8Loperationsfortheyearinsomedetail.Earnings,energysupplyanduse,generatingprojects,construction,financing,energyconservationandpersonnelchangesareamongthetopicsreviewed.FinancialSectionThissection(pages11through27)givesthedetailedstatisticalandaccountingfactsandinterpretivetextthatarenecessaryforabasicunderstandingofthefinancialaspectsoftheCompany'sbusiness.StatisticalSummaryIncludedonpage11areindicatorsmeasuringthefinancialhealthoftheCompany.TimesinterestearnedisthenumberoftimestheCompany'sincomecoverstheinterestpaidonthemoneytheCompanyowes(mortgagebonds,notesandbankloans)tocreditors.Returnonaveragecommonequityistherateofreturnearnedonallthemoneyinvestedinthebusinessbythecommonshareowners,includingtheamountoftheirearningsreinvestedinthebusiness.UndertheOperationsheadingarekilowatt-hoursales,averagepriceofelectricity,sourcesanddispositionofenergy,numberofemployeesandotherpertinentoperatingdata. AnalysisofStatementofIncomeThisanalysisoftheCompany'sfinancialperformance(pages12-14)explainsreasonsforchangesinspecificitemsontheStatementofIncomeforthelasttwoyears.Detailedarethereasonsfortheslightriseinsalesandincreasedrevenues.Variouscostcomponentsinrunningthebusinessarereviewed,suchasfuelandthecostoffinancing.StatementofIncomeTheStatementofIncome(page15)showstheresultsofoperatingthebusinessoverthewholeyear.FiguresforoneyeardonotprovideenoughinformationtoobservetrendsorpatternsintheCompany'soperations.PP8LincludesaStatementofIncomeforfiveyears.TheformoftheStatementofIncomeusedbymostutilitiesisgenerallyprescribedbyregulatorycommissionshavingjurisdictionovertheutilityratesoftheCompany.OperatingrevenuesminustheoperatingexpensesincurredinrunningthebusinessiscalledOperatingIncome.ThisrepresentstheresultsoftheCompany'sutilityoperations(forPP&Lthesaleofelectricityandsteam).UnderthecaptionOtherIncomeandDeductionsareitemswhichrelatetotheconstructionofelectricfacilitieswhicharenotyetusedinutilityoperationsandothernon-utilitytransactionsoftheCompany.InterestchargesanddividendsonpreferredandpreferencestockareamountspaidtocreditorsoftheCompanyandownersoftheseclassesofstock.TheamountleftoverforthecommonshareownersafterallexpensesandcostsaretakencareofiscalledEarningsApplicabletoCommonStock.Dividingthisamountbytheaveragenumberofcommonsharesoutstandingduringtheyeargivesearningspershare-animportantindicatoroftheCompany'sfinancialperformance.ThefollowingisabriefexplanationofsomeofthecaptionsappearingonPP8L'sStatementofIncome.OperatingRevenues:Revenuesareprimarilyamountsbilledtocustomersforelectricity.OperatingExpenses:Thesearethecostsinvolvedinprovidingelectricservice.~Wagesandemployeebenefits-Likeemployeesofanyotherbusiness,PP&L'sworkersreceivedwagesandemployeebenefitsforworkperformedinprovidingelectricservice.~Fuel-Thecostofcoalandoilweburnedinourgeneratingunits.~Powerpurchasesandinterchangepowersales-PP8Lisamemberofan11-companypowerpoolknownasthePennsylvania-NewJersey-Maryland(PJM)Interconnection.Interchangepoweristheelectricitythatisboughtfromorsoldtotheseandotherelectriccompaniesinordertohavethemosteconomicutilizationofgeneratingfacilities.Thepricereceivedforinterchangepowersalesismainlybasedontherelationshipoffuelcostsofthesellingandbuyingutilities.Regulatoryauthoritiesrequirethatwereduceexpensesbytheamountreceivedfromthesesalesratherthanclassifyingitasrevenue.Whetherit'saddedonthetoplineasadditionalrevenueorsubtractedfromexpenses,theeffecton incomeisthesame.Theparenthesisindicateit'sa"credit"toexpenses-thatis,expensesarelessbythatamountthantheywouldotherwisebe.~Otheroperatingcosts-Includesservices,supplies,rents,etc.-thosegoodsandservicesPP&Lneedstooperatethebusiness.Thisincludescostoftree-trimmingtopreventserviceinterruptions,fireandcasualtyinsurance,researchanddevelopment,rentalofequipment,materials,postage,paperandmanymoreitems.~Depreciation-ThisisatermusedtodescribethecosttotheCompanyofusingupcertaintypesofpropertyoveraperiodoftime.Justlikethenewcaryoumaybuy,theplantswebuildandequipmentwebuywearoutovertimeorbecomeobsoleteandthevaluedeclines.It'sthesameastheoldercaryoutradeinonthenewone-it'salwaysworthalotlessthanwhenitwasnew.WhenPP8Lbuysequipmentthatwillbeinuseoveranumberofyears,itsfullpurchasecostisnotshowninonelumpsumasexpenseontheStatementofIncome.Instead,wespaceoutthecostovertheperiodtheequipmentisexpectedtobeinuse-andduringthattimeitsvalueisdecliningordepreciating.oIncometaxes-Justliketheindividualtaxpayer,PPBLpaystaxestothefederalandstategovernmentsbasedontherevenueitreceivesminusallowabledeductibleitems.IncometaxesappearintwoplacesontheStatementofIncome,underOperatingExpensesandasacreditamountunderOtherIncomeandDeductions.TherearethreemajorcomponentsofIncomeTaxes-current,deferredandinvestmenttaxcredits,whicharedetailedinNote6toFinancialStatementsonpages23and24.Thenetofthecurrentamountsshownrepresentthetaxwhichiscurrentlypayable.Note6showsthisamount,whichisarrivedatbysubtractingthecreditamountunderOtherIncomeandDeductionsfromtheexpenseunderOperatingExpense.Thecurrenttaxespayablehavebeenreducedbyinvestmenttaxcredits.Thesecreditsaredesignedtoencouragecompaniestokeepplantequipmentmodernandefficient,andtoexpandfacilitiestodaytocreatemorejobopportunitiesand,inturn,promoteahealthiereconomy.Thecreditsarebasedonapercentage(4percentand10percent)ofthecostofnewplantandequipmentplacedinserviceor,incertaincircumstances,paymentsmadeonfacilitiesunderconstruction.Undertheincometaxlaw,utilitiesmustreflectthistaxsavingsasacreditontheStatementofIncomeoverthelifeoftheproperty.Note6showstheamountofcurrentinvestmentcreditdeferredandalsotheamountofprioryear'creditsamortizedorreflectedinincomeduring1974and1975.Asafurtherincentivetostrengthentheeconomy,businessesarepermittedtodeferaportionoftheirtaxpaymentstoafuturedatetherebymakingmorecashavailablenowfortheexpansionoffacilities.Theportionoftaxexpenseidentifiedasdeferredrepresentsthetaxobligationapplicabletothecurrentyear'sincomewhichwillhavetobepaidinfutureyears.~Taxesotherthanincome-PP&Lpaysspecialrealestatetaxes,agrossreceiptstax(whichisonlyapplicabletoutilities),capitalstocktaxandothertaxessuchasthecorporatematchingofemployees'ocialSecuritydeductions. OtherIncomeandDeductions:~Allowanceforfundsusedduringconstruction(Allowance)-IsthebiggestpartofOtherIncome.Alookatourrate-makingmechanismisnecessarytoexplainthisitem.Ourelectric(andsteam)ratesarebasedinpartontheannualcostofsecuritiesusedtofinanceallofourutilityplant(generators,lines,cables,poles,etc.)thatisbeingusedtoprovideservicetoourcustomers.But,wecan'tincludeanyofthispropertyinthebaseusedtoestablishratesuntilit'sactuallyinuse.Apowerplanttakes10yearsormoretodesign,engineerandbuild.Thepeoplewhodothedesigning,theengineeringandthebuilding,andallthefirmswhoprovidematerialcan'twait10yearstogetpaid.Wepayfortheplantasit'sbuilt.Mostofthemoneyneededtofinanceelectricfacilitiesunderconstructionmustbeprovidedbyinvestors.Wemustsellmortgagebondsandcommon,preferredandpreferencestocksaswellasborrowfrombanks.WemustpayinterestanddividendsforuseofthismoneyandthesechargesarereflectedontheStatementofIncomeasacostofdoingbusiness.TheAllowanceisanon-cashaccountingcreditthatenablesustooffsetthesefinancingcostsontheStatementofIncomeandcorrespondinglyincludesuchfinancingchargesasacostofthefacilitiesbeingconstructed.Atthetimeconstructioniscompletedandthepropertyisbeingusedtoserveourcustomers,thetotalcostoftheproject,includingfinancingchargesfortheconstructionperiod,canbeincludedinthebaseusedtoestablishelectricrates.~Incometaxcredits-Aportionoftheconstruction-relatedfinancingchargesarerepresentedbyinterestwhichisdeductiblefor.incometaxpurposesandservestoreducethecurrentpaymentdueonsuchtaxes.Sincethistaxsavingsdoesnotrelatetoutilityoperationsbecausethefacilitiesarenotyetinserviceitisshownaspartofnon-utilityoperationsunderOtherIncomeandDeductions.~Othernet-Includesminoramountsofincomeandexpensesrelatedtonon-utilityoperations.Partoftheseexpensesarecorporatecharitablecontributionswhichareshareownerandnotratepayerexpenses.InterestCharges:TheinterestwepaycreditorsfortheuseofmoneyloanedunderdebtobligationsoftheCompany,whicharemortgagebonds,notesandbankborrowings.NonrecurringCredit:Thisamountrepresentstheeffectonyearspriorto1974ofanaccountingchangemadein1974andwasincludedasincomeonaonce-and-donebasisforthatyear.TheaccountingchangewasmadetomatchtherecordingoffuelcostswithrelatedrevenuesbilledundertheCompany'sfueladjustmentclauses.NetIncome-BeforePreferredandPreferenceStockDividends:ManytimesNetIncomeislookedatastheprofitline,butformostutilitycompaniesthereisanadditionalcostofdoingbusiness-thecostofpreferredandpreferencestock.Wehaveacontractualobligationtopaysetdividendsonpreferredandpreferencestockwhichweselltoraisefunds,principallytofinanceconstructionprojects. EarningsApplicabletoCommonStock:Thisiswhatisleftoverforcommonshareowners.Someofthisamount(about63percent)ispaidasdividendstocommonshareownersandtherestisreinvestedinthebusinesstohelppayfortheconstructionofnewfacilities,whichreducestheneedtosellmorestocksandbonds.EarningsPerShareofCommonStock:AftertakingintoaccountalltheitemsontheStatementofIncome,akeyindicatorinmeasuringthefinancialperformanceofacompanyistheamountitearnedfor.eachshareheldbyshareownersofcommonstock.Thisistheamountwhichisapplicabletocommonstockdividedbytheaveragenumberofcommonsharesoutstanding.Otherimportantmeasuresonapersharebasisaredividendsandcommonequity.Dividendspershareindicatetheamountofdividendspaidononeshareofcommonstockduringtheyear.Commonequity(commonstockplusearningsreinvestedminuscapitalstockexpense),whichisshownontheBalanceSheet,representsthetotalinvestmentbycommonshareowners.Dividingthisamountbythetotalcommonsharesoutstandingiscalledcommoninvestmentpershareorbookvalue.TheBalanceSheetWhiletheStatementofIncomeshowsaninvestorhowwedidoverthewholeyear,theBalanceSheetrepresentsthefinancialpictureasitstandsononeparticularday-inourcasethefiguresareshownforDecember31,1974andDecember31,1975.TheBalanceSheet(pages16and17)isdividedintotwosections,AssetsandLiabilities,withbothsectionsalwaysinbalance.Assets:Itemsofvalueownedbyabusiness,suchas:~UtilityPlant-Thefacilitiesusedtoprovideelectricserviceforourcustomers.Itincludesthatportionofprojectsunderconstructionthatwehavepaidforbutwhicharen'tyetcompleteenoughtobeusedtoprovideserviceandputinourratebase.~Investments-Includesproperty,investmentsincoalandothercompaniesandmiscellaneousholdings.~CurrentAssets-Cashorassetsthatcangenerallybeconvertedtocashorareexpectedtobeusedinthebusinessduringthefollowingyear.~DeferredDebits-Basicallytheseareitemswhichwillbechargestoexpenseorotheraccountsoveraperiodoftime.Liabilities:ThisincludeswhatinvestorshaveputintoPP8LandamountstheCompanyowestoothers.~Capitalization-Themoneyallofourinvestors(common,preferredandpreferenceshareownersandbondholders)haveputintothebusiness.Itincludesearningsreinvestedwhichistheportionofcommonshareownerearningswhichhasgonebackintothebusiness.~CurrentLiabilities-GenerallyincludesobligationsoftheCompanywhichfallduewithinthecomingyearanditemswhichhavebeenbilledbyothers,butnotyetpaid.~DeferredandOtherCredits-Wenotedpreviously(indiscussingincometaxesshownontheStatementofIncome)thatincometaxpaymentsweredeferred.Underthisbalancesheetcaptionare shownthetaxobligationsdeferredinthecurrentandprioryearswhichwillcomedueinthefuture.Alsoshownarethetotalinvestmenttaxcreditswhichhavebeendeferredandwillbecreditedtoincomeoverfutureyears.ScheduleofCapitalStockandLong-TermDebtPage18detailsthevariousclassesofstock,mortgagebondsandotherlong-termdebt.StatementofChangesinFinancialPositionThisstatement(page19)explainswheretheCompanyobtaineditsfunds-suchasfromoperations,borrowingsandthesaleofadditionalstock.AlsowhattheCompanydidwiththosefunds-suchasconstructingnewfacilities,retiringsecuritiesandpayingdividendstostockholders.StatementofEarningsReinvestedThecumulativeamountofearningsputbackinthebusinessisrecapped(page20)byshowingtheincomeavailabletopaydividendsandtheamountofdividendspaidtoshareowners.NotestoFinancialStatementsEachfinancialstatementintheannualreportisfootnotedwiththewords"SeeaccompanyingNotestoFinancialStatements."Thisreferstothesixpages(20through25)ofexplanatoryandsupplementalinformationontheCompany'soperations.Thepagesprovideaccountingclarificationandin-depthexplanationsofmanyitemsfoundinthefinancialstatements.Ifthisinformationwereincludedinthefinancialstatements,insteadoffootnotedandgroupedtogether,theresultwouldprobablybeanunintelligiblejumbleofwordsandnumbers.Thefootnotesaredesignedtoprovidebetterinsightforthosewhowantmoreinterpretiveandtechnicalinformationtosupportthefinancialstatement.Auditors'pinionThis(page26)isthereader'sassurancebyanindependentaccountingfirmthatPPBLhasappliedaccountingprincipleswhicharegenerallyusedinfinancialreporting.Itistheauditors'eportthatthefinancialstatementshavebeenexaminedandtheiropinionastothefairnessofdatapresented.FiscalAgentsandSecuritiesListedThisinformation(page26)liststransferagents,registrars,disbursingofficeandstockexchangelistingsforallclassesofPPBLstock.DividendsandStockPricesThissection(page27)providesquarterlymarketpriceanddividendinformationofallclassesoftheCompany'sstockfortheprevioustwoyears. STATEMENTOFINCOMEThousandsofDollars19751974197319721971OperatingRevenues(Note2)$544,129472,036384,814345,792300,707OperatingExpenses=WagesandemployeebenefitsFuel(Note3)PowerpurchasesInterchangepowersalesOtheroperatingcosts.DepreciationIncometaxes(Note6)Taxes,otherthanincome(Note6)OperatingIncomeOtherIncomeandDeductionsAllowanceforfundsusedduringconstructionIncometaxcredits(Note6),Other-netIncomeBeforeInterestChargesInterestChargesLong-termdebt.Short-term'debtandotherIncomeBeforeNonrecurringCreditNonrecurringCreditRelatedtoAccountingChange,NetofIncomeTaxes($4,831)(Note3).............NetIncome-BeforePreferredandPreferenceStockDividends.DividendsonPreferredandPreferenceStock..EarningsApplicabletoCommonStockEarningsPerShareofCommonStock(a)BeforeNonrecurringCredit.NonrecurringCreditEarningsonaComparableBasisAfterAllocatingNonrecurringCredittoAppropriatePriorPeriodEarningsapplicabletocommonstockEarningspershareofcommonstock(a)........AverageNumberofSharesOutstanding(thousands)...DividendsDeclaredPerShareofCommonStock.......71,773271,63637,698(172,823)68,36958,54047,29840,669423,160120,96936,60511,2013,15450,960171,92967,9326,45674,38897,54197,54124,509$73,032$2.87$2.87$73,0322.8725,459$1.8067,374192,35324,176(108,723)54,48952,39939,21135,571356,850115,18620,7325,0763,41829,226144,41251,1499,94661,09583,3174,16287,47919,65667,8232.88.193.0763,6612.8822,0671.7757,421125,57715,299(70,175)45,23448,83733,94330,005286,14198,67314,967911,30016,358115,03143,2034,91648,11966,91266,91217,19149,7212.572.5751,0662.6419,3591.6855,22095,22013,514(34,569)39,51241,44626,08625,658262,08783,70514,647334(305)14,67698,38136,5073,95340,46057,92157,92114,52643,3952.482.4843,1612.4617,5131.6448,19879,49918,963(15,468)33,21434,90311,54522,146233,00067,70716,242176(63)16,35584,06230,8954,59535,49048,57248,57211,39237,1802.372.3738,4882.4515,6901.60(a)Basedonaveragenumberofsharesoutstanding.SeeaccompanyingNotestoFinancialStatements.15 BALANCESHEETASSETSThousandsofDollarsDecember3119751974UTILITYPLANTPlantinservice-atoriginalcostElectricSteamheatLessaccumulateddepreciationConstructionworkinprogress-atcost$1,992,6737,8052,000,478406,3131,594,165437,0622,031,2271,687,7407,7031,695,443354,2491,341,194403,7071,744,901INVESTMENTSSubsidiaries-atequitySafeHarborWaterPowerCorporation-atequityNonutilityproperty-atcost(lessaccumulateddepreciation:1975,$1,069;1974,$554)Other-atcostorless28,5953,6264,6922,47339,3864,6313,5992,4954,06414,789CURRENTASSETSCash(Note4)Accountsreceivable(lessreserve:1975,$1,346;1974,$1,031)CustomersOtherNotesreceivableRecoverablefuelcosts(Note3)Materialsandsupplies-ataveragecostFuelOperatingandconstruction.Other14,83236,24316,81732,17837,15468,31822,6165,995234,15316,25133,90716,8345,74035,58771,88624,97913,072218,256DEFERREDDEBITS7,118$2,311,884,7,4821,985,428SeeaccompanyingNotestoFinancialStatements.16 LIABILITIESThousandsofDollarsDecember3119751974CAPITALIZATION(a)Shareownersinvestment(Note5)PreferredstockPreferencestockCommonstockCapitalstockexpense(deduction)Earningsreinvested(Notes7and8)$156,375210,000412,303(8,801)212,550982,427156,375140,000354,540(7,580)185,695829,030Long-termdebt........1,032,9802,015,407914,3491,743,379CURRENTLIABILITIESLong-termdebtduewithinoneyear(a)Commercialpapernotes(Note4)AccountspayableTaxesaccruedDeferredincometaxesapplicabletorecoverablefuelcosts.DividendspayableInterestaccruedOther.10,96673,63051,28120,19919,66919,36221,6179,719226,44385,50937,12111,85218,84015,84418,7898,338196,293DEFERREDANDOTHERCREDITSDeferredinvestmenttaxcredits.DeferredincometaxesOther31,84922,71315,47270,034$2,311,88418,86022,6894,20745,7561,985,428(a)SeeScheduleofCapitalStockandLong-TermDebtonpage18.FirstMortgageBondsof$93millionwhichmaturedandwererefinancedIn1975areincludedlnthelong-termdebtbalanceatDecember31,1974.ScaaccompanyingNotestoFinancialStatements. SCHEDULEOFCAPITALSTOCKANDLONG-TERMDEBTDecember31,1975ThousandsofDollars4,17822,8786,30040,00022,2377,763$156,375PREFERENCESTOCK-nopar,cumulative,authorized5,000,000shares$8.00series,outstanding350,000shares$8.40series,outstanding400,000shares$8.70series,outstanding400,000shares$9.25series,outstanding200,000shares$11.00series,outstanding500,000shares$13.00series,outstanding250,000shares$35,00040,00040,00020,000(a)50,000(a)25,000$210,000COMMONSTOCK-nopar,authorized50,000,000shares,outstanding26,551,981shares.......~.........$412,303CAPITALSTOCK(Note5)PREFERREDSTOCK-$100par,cumulative4%%d'/o,authorized629,936shares,outstanding530,189shares.......$53,019Series,authorized5,000,000shares3.35'/o,outstanding41,783shares..4.40'lo,outstanding228,773shares.4.600/0,outstanding63,000shares..7.40'/0,outstanding400,000shares.8.60'/o,outstanding222,370shares.9%,outstanding77,630sharesLONG-TERMDEBTFIRSTMORTGAGEBONDS2/s'/0seriesdue1976.............2/4oloseriesdue1977.............,3i/s'/0seriesdue1978.............2/i/0seriesdue1980.............3Vso/oseriesdue1982.......'......10'/s'/0seriesdue1982.............3%i'/oseriesdue1983.............3s%%d%seriesdue1985.............4s/s%seriesdue1991.............4'/s%seriesdue1994.............55%%d%seriesdue1996.............6N/oseriesdue1997.~...~.~~.~"7%seriesdue1999.............8~%%d%seriesdue1999..........~..9%seriesdue2000.............7'/i/oseriesdue2001.............7'Ye'/oseriesdue2002...........~~7i%%d%seriesdue2003.............9ilio/oseriesdue2004.............9Nloseriesdue2005.............9y4/oseriesdue2005.............4AD/0to55/6'lopollutioncontrolseriesAdueannually$500,1977-1983;$900,1984-2002;$7,400,2003$8,00020,0003,00037,0007,500100,00025,00025,00030,00030,00030,00030,00040,00040,00050,00060,00075,00080,00080,000125,000(a)100,000(a)28,0001,023,500NOTES6%/0-7/odue19767'/0due1980Other2,80020,00055123,351Unamortizeddiscountandpremium-net.(2,905)1,043,946Lessamountduewithinoneyear........10,966$1,032,980(a)Issuedin1975.SeeaccompanyingNotestoFinancialStatements.18 STATEMENTOFCHANGESINFINANCIALPOSITIONThousandsofDollars19751974197319721971SOURCEOFFUNDSOperationsNetincome(1974includes$4,162nonrecurringcredit)Charges(credits)againstincomenotinvolvingworkingcapitalDepreciationNoncurrentdeferredincometaxesandinvestmenttaxcredits-netAllowanceforfundsusedduringconstructionOther.58,54052,39948,83741,44634,90315,7018,79011,2827,984(1,127)(36,605)7,464(20,732)520(14,967)220(14,647)220(16,242)220142,641128,456112,28492,92466,326$97,54187,47966,91257,92148,572OutsidefinancingCommonstock.Preferredstock.PreferencestockFirstmortgagebonds............Otherlong-termdebt.............Short-termdebt-netincrease......Workingcapital-decrease(a)...................Investmentinsubsidiaries-decrease............Other-net57,76335,15670,000225,00020825,000180,00036045,658$510,778415,319352,971286,17415,166(b)68940,90040,000108,00020,024208,9243,1564,065328,42935,00075,0008,34220,231185,513917279,35440,00060,00010,506147,62623,8961234,676242,64746,94037,120APPLICATIONOFFUNDSConstructionexpenditures$345,289Allowanceforfundsusedduringconstruction...(36,605)308,684271,460224,496218,754(20,732)(14,967)(14,647)250,728209,529204,107192,399(16,242)176,157SecuritiesretiredFirstmortgagebonds.Otherlong-termdebtShort-termdebt-netdecrease.93,00011218,63211,87915,00010,041'0,05756,6318,11721,627Dividendsonpreferred,preferenceandcommonstockWorkingcapital-increase(a)Investmentinsubsidiaries-increase....Other-net104,99118,63266,67225,05729,74470,68658,89750,03743,33036,74682,753(b)6,62423,9642,1912,4534,309236$510,778415,319328,429279,354242,647(a)Excludesshort-termdebtandlong-termdebtduewithinoneyear.(b)ThenetchangesInworkingcapitalresultedprincipallyfromthefollowing:1975,increasesInnotesreceivable,accountspayable,accruedtaxes,dividendspayableandaccruedinterest;1974,increasesinfuelinventory,accountsreceivableanddeferredfuelcostslessrelateddeferredincometaxes.SeeaccompanyingNotestoFinanciaiStatements. STATEMENTOFEARNINGSREINVESTEDThousandsofDollarsBalance,January1NetIncome(1974includes$4,162nonrecurringcredit)DividendsPreferredstockPreferencestock.................Commonstock(pershare-1975,$1.80;1974,$1.77;1973,$1.68;1972,$1.64;1971,$1.60)1975$185,69597,541283,2369,39315,11646,17770,6861974157,11387,479244,5929,39310,26339,24158,8971973140,23866,912207,1507,5519,64032,84650,0371972125,64757,921183,5686,4338,09328,80443,3301971113,82148,572162,3936,4334,95925,35436,746Balance,December31(Notes7and8)$212,550185,695157,113140,238125,647NOTESTOFINANCIALSTATEMENTSDecember31,1975and19741.SUMMARYOFACCOUNTINGPOLICIESAccountingSystemAccountingrecordsaremaintainedinaccord-ancewiththeUniformSystemofAccountspre-scribedbytheFederalPowerCommission(FPC)andadoptedbythePennsylvaniaPublicUtilityCommission(PUC).UtilityPlantAdditionstoutilityplantandrepIacementsofunitsofpropertyarecapitalizedatcost.Costsofdepreciablepropertyretiredorreplacedareremovedfromutilityplantandsuchcosts,plusremovalcosts,lesssalvage,arechargedtoaccumulateddepreciation.CostsoflandretiredorsoldareremovedfromutilityplantandanygainsorlossesarereflectedontheStatementofIncome.Allexpendituresformaintenanceandrepairsofpropertyandthecostofreplacementofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.AllowanceforFundsusedDuringConstructionAsprovidedintheUniformSystemofAccounts,theCompanycapitalizesaspartofconstructioncostanamountrepresentingthenetcostoffunds(after-taxinterestcostonborrowedmoneyandareasonablerateonothercapital)usedtofinanceconstructionworkinprogress.Theallowanceforfundsusedduringconstruction(Allowance)asshownontheStatementofIncomeisanon-cashitemequaltotheamountcapitalizedandservestooffsettheactualcostoffinancingconstructionworkinprogress.SinceFebruary1,1974theCompanyhascomputedtheAllowancerateonan"after-tax"basisandincometaxreductionsassociatedwiththeinterestcomponentoftheAllowancehavebeenreflectedasIncometaxcreditsunderOtherIncomeandDeductionswithacorrespondingincreaseincurrentincometaxeschargedtoOperatingExpenses.DepreciationForfinancialstatementpurposes,thestraight-linemethodofdepreciationisusedtoaccumu-lateanamountequaltothecostofutilityplantandremovalcosts,lesssalvage,overtheesti-matedusefullivesofproperty.Provisionsfordepreciationresultedinanannualcompositerateof3.3'/0inboth1975and1974.SubsidiariesandSafeHarborInvestmentsinsubsidiaries(ailwholly-owned)andinSafeHarborWaterPowerCorporation(representingone-halfofthatcompany'svotingsecurities)arerecordedusingtheequitymethod20 ofaccounting.TheCompany'ssubsidiariesareengagedincoalminingoperations,holdingcoalreservesandrealestate.Sincethesubsidiariesarenotengagedinthebusi-nessofgeneratinganddistributingelectricity,theCompanybelievesthatitsfinancialpositionandresultsofoperationsarebestreflectedwithoutconsolidation.If'allthesubsidiarieswerecon-sideredintheaggregateasasinglesubsidiary,theywouldnotconstitutea"significantsubsidi-ary"asthattermisdefinedbytheSecuritiesandExchangeCommission.RevenuesRevenuesarebasedoncyclebillingsrenderedtocertaincustomersmonthlyandothersbi-monthly.TheCompanydoesnotaccruerevenuesrelatedtoenergydeliveredbutnotbilled.FuelCostsRecoverableUnderFuelAdjustmentClausesTheCompany'stariffsincludefueladjustmentclausesunderwhichfuelcostsvaryingfromthelevelsallowedinapprovedrateschedulesarereflectedincustomers'illsafterthefuelcostsareincurred.Thechargetoexpenseforfuelcostsrecoverableinthefuturethroughapplicationoffueladjustmentclausesisdeferredtotheperiodsinwhichthesecostsarebilledtocustomers.SeeNote3toFinancialStatements.IncomeTaxesDeferredtaxaccountingisfollowedforitemswheresimilartreatmentinratedeterminationshasbeenorisexpectedtobepermittedbythePUC.Theprincipalitemsareacceleratedamorti-zationofcertifieddefensefacilitiesandpollutioncontrolequipment,deductionofcostsofremov-ingretireddepreciableproperty,thatportionoftaxdepreciationarisingfromshorteningdepre-ciablelivesby20'/oundertheclasslifedeprecia-tionsystem,fuelcostsrecoverableunderfueladjustmentclausesandbeginningin1975theforcedoutagereserve.Taxreductionsarisingprincipallyfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddifferentlyfortaxcomputationthanforbookpurposesareaccountedforundertheflow-throughmethod.Investmenttaxcredits,whichresultinareductionofcurrentfederalincometaxespayable,aredeferredandarebeingamortizedovertheaveragelivesoftherelatedproperty.RetirementPlanTheCompanyhasaRetirementPlancomposedoftwoparts:(1)anon-contributoryportionwhichprovidesbenefitsforalleligibleactiveemployeeswiththefullcostabsorbedbytheCompany,and(2)avoluntaryportioninwhichcontributionsaremadebybothemployeesandtheCompany,butthefullcostofpastserviceandPlanimprove-mentsisbornebytheCompany.Approximately95'/0ofeligibleactiveemployeesaremembersofthevoluntaryportionofthePlan.CompanycontributionstothePlanincludeamountsre-quiredtofundcurrentservicecostsandtoamor-tizeunfundedpastservicecostsoverperiodsofnotmorethan20years.ForcedOutageReserveAself-insurancereserveisprovidedtocovertheincreasedlevelofpowercostswhichareexperi-encedwhenanyoftheCompany'smajorgeneratingunitsareforcedoutofserviceduetodamagecausedbyaccidentorcertainotherunforeseenincidents.Thereservecoversincreasedpowercostsresultingfrompurchasingorgeneratingreplacementpowerathighercostsorlossofinterchangesalesinexcessof$0.5millionforeachaccidentorincident.AstocertainoftheCompany'slargegeneratingunits,costschargeabletothereservearelimitedto$10millionsinceoutsideinsuranceiscarriedtocovercostsinexcessofthatamount.Thereserveisestablishedonthebasisofhistoricalexperienceandhasbeenrecognizedinratemakingproce-duresbythePUC.AtDecember31,1975thereservebalancewas$11.9million.Priorto1975theannualprovisionchargedtooperatingex-pensewasreducedbyrelatedincometaxes. 2.RATEFILINGSInMarch1975theCompanyfiledwiththePUCatwo-stagerequestforadditionalincreasesinelectricrevenuesofabout15'/0whichtotaledapproximately$80millionannually.ThePUCsuspendedbothstagesofthisrequest.TheCom-panysubsequentlyfiledarevisedfirststageincreaseofabout4'/0(approximately$21.7millionannually)whichwasnotsuspendedandwentintoeffectonSeptember13,1975.ThePUCconcludedhearingsonbothstagesinJanuary1976butafinalorderisnotexpectedbeforethelatterpartofMarch1976.Revenuescollectedunderthe4'/oincreasetotaled$4.9mil-lionduring1975andaresubjecttopossiblerefundpendingfinalactionbythePUC.Arateincreaseofapproximately$1millionannually,affecting15resalecustomers,waspermittedtobecomeeffectiveinSeptember1974bytheFPC.Theaffectedcustomersareopposingtherateincreaseandrevenuescollectedaresubjecttopossiblerefund.3.FUELCOSTSRECOVERABLEUNDERFUELADJUSTMENTCLAUSESEffectiveJanuary1,1974,theCompany,asauthorizedbythePUC,changeditsmethodofaccountingforfuelcoststoachievematchingoffuelexpenseandrevenuesbyaccountingperiods.Thischangeresultedinthechargetoincomeforfuelcostsrecoverableinthefuturebeingdeferredtotheperiodsinwhichthesecostsarebilledtocustomersthroughapplicationoffueladjustmentclauses.For1974,fuelcostswerelowerbyanetamountof$26.6millionand,afterincometaxeffects,earningsapplicabletocommonstockwereincreasedby$12.6million($0.57pershare)asaresultofthisaccountingchange.TheNonrecurringCreditshownontheStatementofIncomefor1974representsthecumulativeeffecttoDecember31,1973ofthechangeinaccountingforfuelcosts,netofrelatedincometaxes.EarningsrestatedonacomparablebasisshownontheStatementofIncomereflecttheeffectofretroactiveapplicationofthechangeinaccount-ingforfuelcostsandrelatedincometaxeffectshadthenewmethodbeenusedsincetheprinci-palfueladjustmentclausebecameeffectivein1970.4.COMPENSATINGBALANCESANDSHORT-TERMDEBTInordertoprovideloansforinterimfinancingandprovideback-upfinancingcapabilityforcommercialpapernotestheCompanyhadlinesofcreditwithvariousbanksaggregating$200millionatDecember31,1975.UseoftheselinesofcreditwasrestrictedatDecember31,1975totheextentof$9millionbyshort-termbankloanstocertaincompaniesinvolvedinfuelsupplyopera-tions.Bankborrowingsaregenerallyforoneyearandmaybeprepaidatanytimewithoutpenalty.NobankloanswereoutstandingatDecember31,1975orDecember31,1974.OftheCompany'slinesofcredit,$145millionwasmaintainedbycompensatingbankbalancerequirements(notlegallyrestrictedastowith-drawal)and$55millionbypaymentofcommit-mentfees.Compensatingbankbalancerequirementsareonanaverageannualbasiswhichapproximated$13.9millionatDecember31,1975.Commitmentfeesonanannualizedbasisapproximated$0.4millionatDecember31,1975.Commercialpapernotesaregenerallysoldforperiodsrangingfrom30to60days.TheweightedaveragediscountratesapplicabletocommercialpapernotesoutstandingatDecember31,1975and1974were5.6'/0and9.4'/o,respectively.Themaximumaggregateamountofshort-termdebtoutstandingattheendofanymonthduring1975was$142.6millionandduring1974was$1,40.3millionwithanaverageaggregatedailyamountoutstanding'duringtheseyearsof$85.2millionand$95.6million,'espectively.The22 approximateweightedaverageinterestrateofshor'I-termdebtduring1975was7.3'leandduring1974was10.0'/o,calculatedbydividingthetotalshort-termdebtinterestexpensefortheyearbytheaverageaggregatedailyamountofshort-termdebtoutstandingduringtheyear.TheCompanydoesnotamortizecapitalstockexpensewhichrepresentscommissionsandexpensesincurredinconnectionwiththeissu-anceandsaleofcapitalstock.Salesofcapitalstockduring1975and1974wereasfollows(sharesandamountinthousands):1975CommonStockPublicofferingDividendreinvestmentandemployeeinvestmentplansPreferenceStock$11.00Series..........$9.25Series~~....,,...SharesAmount3,000$51,4503015,59550020050,00020,0001974CommonStock....PreferenceStock$13.00Series....2,20025035,15625,000Eachofthefollowingseriesofstockcontainssinkingfundprovisionswhicharedesignedtoretiretheseriesataredemptionpriceof$100pershare:5.CAPITALSTOCKOnApril23,1975theauthorizedCommonStockoftheCompanywasincreasedfrom30,000,000sharesto50,000,000shares.CommonStockof$412,303,000atDecember31,1975includes$718,000cashinstallmentsre-ceivedunderadividendreinvestmentplanforshareownersandemployeeinvestmentplanforwhich36,337sharesofCommonStockwereissuedinJanuary1976.EffectiveJanuary1,1976theCompanyreplaceditstwoinvestmentplanswith'asingle,newdividendreinvestmentplanforwhich900,000sharesofunissuedCommonStockhavebeen.authorizedforissuancepursu-anttothetermsoftheplan.6.TAXESIncometaxexpensefortheyears1975and1974isreflectedontheStatementofIncomeasfollows:19751974ThousandsofDollarsOperatingExpensesCurrentFederalState12,5543,85816,412$22,5478,22130,768DeferredFederalState2,9525903,54215,9913,27119,262'nvestmenttaxcreditsDeferredAmortizationofdeferments..........OtherIncomeandDeductions-CurrentFederalState.14,4654,753(1,477)(1,216)12,9883,53747,29839,211(9,164)(4,156)(2,037)(920)(11,201)(5,076)Totalincometaxexpense............$36,09734,135(a)(a)Excludes$4,831deferredincometaxesrelatedtoNonrecurringCredit.TotaltaxescurrentlypayableisarrivedatbysubtractingthecreditamountunderOtherIncomeandDeductionsfromtheexpenseunderOperatingExpensesasfollows:OperatingExpensesOtherIncomeandDeductions........Total..........19751974ThousandsofDollars$30,76816,412(11,201)(5,076)$19,56711,336SharestobeRedemptionRedeemedAnnuallyPeriodPreferredStock7.400/oSeries16,0001979thru2003PreferenceStock$13.00Series(a)12,5001980thru1999$11.00Series(a)25,0001981thru2000$9.25Series40,0001977thru1981(a)TheCompanyhastherighttoredeemoneachsinkingfundredemptiondateadditionalsharesuptothenumberofsharesofthisSeriesrequiredtoberedeemedannually.23 Deferredincometaxesresultfromthefollowingitems:19751974ThousandsofDollarsPortionoftaxdepreciationundertheclasslifedepreciationsystemRecoverablefuelcosts.....ForcedoutagereserveOther$4,5403,71582914,009(a)(3,726)1,8991,538$3,54219,262NetincomeIncometaxexpensePre-taxincome$133,638126,445(a)Excludes$4,831deferredincometaxesrelatedtoNonrecurringCredit.IncometaxexpensedifferedfromtheamountcomputedbyapplyingthecombinedFederalandStatecorporateincometaxrates(52.94~/oinboth1975and1974)topre-taxincomeasfollows:19751974ThousandsofDollars$97,54187,47936,09738,966Taxesotherthanincometaxeschargedtooperat-ingexpensewere:StategrossreceiptsStatecapitalstock.......Stateutilityrealestate...SocialsecurityandotherTotal19751974ThousandsofDollars$23,75620,5647,2846,2635,9805,2583,6493,486$40,66935,5717.DIVIDENDRESTRICTIONSTheCompany'scharterandmortgageindenturesrestrictthepaymentofcashdividendsonCom-monStockundercertainconditions.Underthecharterprovisions,whicharethemorelimiting,norestrictionsareeffectiveonthepaymentofsuchdividendsoutofcurrentearnings.TheamountofearningsreinvestedfreeofrestrictionsunderthecharteratDecember31,1975was$154.1million.IndicatedincometaxexpenseontheaboveatcombinedFederalandStatetaxratesReductionsinindicatediocometaxdueto:Amortizationofinvestmenttaxcreditdeferments...Allowanceforfundsusedduringconstruction-nontaxable.............Taxdepreciationinexcessofbookdepreciation....Taxandpensioncosts-taxdeductioninexcessofbookexpenses.......OtherTotalreductioninindicatedincometaxIncometaxexpenseEffectivetaxrateonpre-taxincome...$70,74866,9401,4771,21619,37910,9769,1318,7992,9982,4911,6664,49234,65127,974$36,09738,96627Oo/o308o/o8.HYDROELECTRICPROJECTSTheCompanyoperatestwohydroelectricproj-ectsunderlicensesissuedbytheFPC.CertainreservesrequiredtobeprovidedundertheFed-eralPowerActhavenotbeenrecordedpendingapprovaloftheamountsbytheFPC.TheCom-panyestimatesthatsuchreservesapplicabletotheyearsfrom1946wouldnotexceed$2.8mil-lionatDecember31,1975.9.RETIREMENTPLANObligationsoftheCompany'sRetirementPlanarecurrentlyfundedthroughaTrustFund.AtJune30,1975,theendoftheFund'smostrecentfiscalyear,theFund'sassetsatcostwere$86.6million.Pensioncostswere$8.8millionintheyear1975and$6.7millionin1974.BasedontheFund'sassetsatcost,atJune30,1975theactuariallycomputedunfundedpastservicecostwas$25.8million.Asofthesamedatevestedbenefitsexceededthecostbasisof24 theFund'sassetsby$20.7millionandexceededthemarketvalueoftheFund'sassetsby$27.0million.accruedonthebasisoftheoutstandingleaseliability.TheCompanydoesnotcurrentlyanticipateanysignificantincreaseinpensioncostsasaresultoftheEmployeeRetirementIncomeSecurityActof1974.10.RENTALSANDNONCANCELABLELEASECOMMITMENTSTotalrentalschargedtooperatingexpensefortheyears1975and1974amountedto$9.5and$8.9million,respectively.AtDecember31,1975theCompanywascom-mittedforminimumrentalstotaling$59.4millionundernoncancelableleasesexpiringatvariousdatesto1996.Theminimumrentalsareasfollows(millionsofdollars):1976,$5.5;1977,$5.3;1978,$5.1;1979,$4.8;1980,$4.6;1981through1985,$15.7;1986through1990,$10.2;1991through1995,$7.9;after1995,$0.3.Theserentalsareapplicabletothefollowingcategoriesofprop-erty:combustionturbinegeneratingequipment,$17.5million;railroadcoalcars,$23.9million;computerequipment,$13.5million;andcon-structioncranes,$4.5million.GenerallytheleasescontainrenewaloptionsandobligatetheCompanytopaymaintenance,insuranceandotherrelatedcosts.Theimpactuponnetincomeineachoftheyears1975and1974wouldbelessthan1%ifallnon-capitalizedfinancingleaseswerecapitalizedandamortizedonastraight-linebasiswithinterest11.PENDINGACQUISITIONOnDecember1,1975theCompanyenteredintoapurchase.agreementtoacquirealloftheoutstandingcapitalstockofHersheyElectricCompany(HEC).TheacquisitioncostofthecapitalstockandtherepaymentofalldebtowedbyHECwillapproximate$8million.ThereportedrevenuesandnetincomeofHECfortheyear1975were$8.7millionand$0.4million,respectively.Theacquisitionwillnotbeconsum-mateduntilallnecessaryregulatoryapprovalshavebeenreceived.12.COMMITMENTSANDCONTINGENTLIABILITIESTheCompanyestimatesthatabout$1.43billionwillberequiredtocompleteconstructionproj-ectsinprogressattheendof1975.Ofthisamount,approximately$1.28billionisrelatedtocompletionoftheCompany'stwonucleargener-atingunitsatitsSusquehannaPowerPlant.TheCompany'sestimatedconstructionprogramfor1976is$390million.Inconnectionwithprovidingforitsfuturebitu-minouscoalsupply,theCompanyatDecember31,1975hasguaranteedcapitalandotherobliga-tionsofcertaincoalsuppliers(includingfiveownedandtwocontrolledcoalcompanies)aggregating$131.6million.25 HASKINS&SELLSCertifiedPublicAccountantsAUDITORS'PINIONTwoBroadwayNewYork10004TheShareownersandBoardofDirectorsofPennsylvaniaPower&LightCompany:WehaveexaminedthebalancesheetofPennsylvaniaPower(tLightCompanyasofDecember31,1975and1974,therelatedstatementsofincome,earningsreinvested,andchangesinfinancialpositionfortheyearsthenendedandtheschedulebfcapitalstockandlong-termdebtasofDecember31,1975.Ourexamin-nationwasmadeinaccordancewithgenerallyacceptedauditingstandardsand,accordingly,includedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircumstances.Inouropinion,suchfinancialstatementsandschedulepresentfairlythefinan-cialpositionoftheCompanyatDecember31,1975and1974andtheresultsofitsoperationsandchangesinitsfinancialpositionfortheyearsthenended,incon-formitywithgenerallyacceptedaccountingprinciplesconsistentlyappliedduringtheperiodandonabasisconsistentwiththeprecedingyear(exceptforthechangein1974,withwhichweconcur,inthemethodofaccountingforrecover-ablefuelcostsasdescribedinNote3oftheNotestoFinancialStatements).February3,1976FISCALAGENTSSECURITIESLISTEDONEXCHANGESTRANSFERAGENTSFORPREFERRED,PREFERENCEANDCOMMONSTOCKIndustrialValleyBankandTrustCompany634HamiltonMallAllentown,Pennsylvania-18101IrvingTrustCompanyOneWallStreetNewYork,NewYork-10015PennsylvaniaPower&LightCompanyTwoNorthNinthStreetAllentown,Pennsylvania-18101REGISTRARSFORPREFERRED,PREFERENCEANDCOMMONSTOCKTheFirstNationalBankofAllentownHamiltonMallatSeventhAllentown,Pennsylvania-18101MorganGuarantyTrustCompanyofNewYork23WallStreetNewYork,NewYork-10015DIVIDENDDISBURSINGOFFICEFORPREFERRED,PREFERENCEANDCOMMONSTOCKTreasurerPennsylvaniaPower&LightCompanyTwoNorthNinthStreetAllentown,Pennsylvania-18101NEWYORKSTOCKEXCHANGEFirstMortgageBonds,10%%Seriesdue19824%%PreferredStock(Code:PPLPRB)4.40%SeriesPreferredStock(Code:PPLPRA)8.60%SeriesPreferredStock(Code:PPLPRG)PreferenceStock,$8.00SeriesCode:PPLPRJ)PreferenceStock,$8.40SeriesCode:PPLPRH)PreferenceStock,$8.70SeriesCode:PPLPRI)PreferenceStock,$11.00Series(Code:PPLPRL)PreferenceStock,$13.00Series(Code:PPLPRK)CommonStock(Code:PPL)PBWSTOCKEXCHANGE4~/to/oPreferredStock3.35%SeriesPreferredStock4.40%SeriesPreferredStock4.60%SeriesPreferredStock8.60%SeriesPreferred,Stock94/oSeriesPreferredStockPreferenceStock,$8.00SeriesPreferenceStock,$8.40SeriesPreferenceStock,$8.70SeriesPreferenceStock,$11.00SeriesPreferenceStock,$13.00SeriesCommonStock26 QuarterlyDividendsandMarketPriceofVotingSecuritiesfor1975and1974ReportedMarketPrice-DollarsperShareQuarterlyDividendsDeclared1stQuarterHighLow2ndQuarterHighLow3rdQuarterHighLow4thQuarterHighLow1975CommonStockPreferredStock4'/to/oSeries3.35o/o4.4po/o46po/o740o/o(a)8.60o/o9PPo/o$0.451.1250.83751.101.151.852.152.252015s/s5244'/s49'/s45'h4945'/s4944'/s3531r/s3433353250'/s41'/s47'/r434844504447'h45'/s47453532'/s46'!i43'/s49459379'A88'/s8488'/t819580908891889095828819r/s17Ys19r/s17s/s19'/s17%PreferenceStock$8.00$8.40$8.70.$9.25(a)........$11.00$13.002.002.102.1752.3382(c)(b)3.258569897392791201058275817679748578'/t84'A77'ls847888'/s8288'/r80'/s87'/s80'/s103100'A106'h100'/s118111118110M119'h1121974CommonStockPreferredStock4'Ao/oSeries3.35'/o44po/o460'/o7.40'/o(a).........8.60o/o9.PPo/oPreferenceStock$8.00$8.40$8.70$13.00$0.45(d)1.1250.83751.101.151.852.152.252.002.102.1752.93(e)2319'/s21r/s1618'/>>1317ls14r/s57'/s5254th48r/s50'/s434843403956%5255'fi53104'/s101104-=102103'h908982'/s87701009489777570100'A969578102'/s98998010699'/r100%86806881M6991'3806781'/r708672109'/s100383533293828'/t5246'/s4841r/s4541524948464845TheprincipaltradingmarketforallclassesofstockIstheNewYorkStockExchangeexceptforthe3.35%.4.60%and9.00%SeriesPreferredStockswhicharelistedonthePBWExchangebutaretradedprincipallyoverthecounter.Pricerangesforthe3.35%,4.60%and9.00%SeriesPreferredStocksarebasedonthebestavailablehighandlowbidpricesduringtheperiodsandshouldbeviewedasreasonableapproximations.(a)Stockwasaprivateplacementandisnotpubliclytraded.(b)StockIssuedAugust1975,thethirdquarterdividendwas$1.01andthefourthquarterdividendwas$2.75.(c)StockIssuedInSeptember1975,fourthquarterdividendonly.(d)Firstquarterof1974was$0.42,remainingquarters$0.45.(e)StockissuedOctober1974,fourthquarterdividendonly.27 OFFICERSBOARDOFDIRECTORSJACKK.BUSBY,PresidentROBERTR.FORTUNE,ExecutiveVicePresident,FinancialBROOKER.HARTMAN,ExecutiveVicePresident,OperationsJOHNT.KAUFFMAN,VicePresident,SystemPower&EngineeringEMMETM.MOLLOY,VicePresident,HumanResource&DevelopmentLEONL.NONEMAKER,VicePresident,Dlv/sionOperationsCHESTERR.COLLYER,TreasurerNORMANW.CURTIS,VicePresident,Engineering&ConstructionJOSEPHL.DONNELLY,VicePresident,FinanceLOUISEA.EARP,AssistantSecretaryCHARLESE.FUQUA,VicePresident,SusquehannaDivisionCHARLESJ.GREEN,VicePresident,Harr/sburgDivisionRICHARDH.LICHTENWALNER,VicePresident,informationServicesCARLR.MAIO,VicePresident,LehlghDivisionJAMESJ.McBREARTY,VicePresident,NortheastDivisionEDWARDM.NAGEL,VicePresident,GonoralCounsolandSecretaryHERBERTD.NASHJR.,VicePresident,Consumer&CommunityServicesEDWINH.SEIDLER,VicePresident,DistributionBRENTS.SHUNK,VicePresident,LancasterDivisionJEANA.SMOLICK,AssistantSecretaryDONALDJ.TREGO,AssistantTreasurerGEORGEF.VANDERSLICE,VicePresidentandComptrollerPAULINEL.VETOVITZ,AssistantSecretaryHELENJ.WOLFER,AssistantSecretaryCorporateManagementCommittee:JackK.Busby.chairman:Messrs.Fortune.Hartman,Ksuifman,Molloy,NonemakerandFloydBelsel.executivesecretary.TheexecutiveorganizationchartoftheCompanylsIncludedinthePP&LProfile.CLIFFORDL.ALEXANDERJR.,Washington,D.C.Partnero/Verner,Liiplert,Bernhard,McPhersonandAlexander,CounsellorsatLawJACKK.BUSBY,AllentownPresidentoftheCompanyRALPHR.CRANMER,WilliamsportMemberofBoardo/Directors-GritPublishingCompanyEDGARL.DESSEN,HazletonPhysician-RadiologistROBERTR.FORTUNE,AllentownExecutiveVicePresident,FinancialBROOKER.HARTMAN,AllentownExecutiveVicePros/dent,OperationsHARRYA.JENSEN,LancasterExecutiveVicePresident,ArmstrongCorkCompany,Manufacturero/interiorfurnishingsandspecialtyproductsW.DEMINGLEWIS,BethlehemPresidentofLehlghUniversityJOHNA.NOBLE,ScrantonPresidento/Cia/andSimpsonCompany,DepartmentstoresRUTHPATRICK,PhiladelphiaChiefCuratoroftheLimnologyDepartmont,AcademyofNaturalSciencesNORMANROBERTSON,PittsburghSeniorVicePresidentandChio/EconomistofMellonBank,N.A.JOSEPHT.SIMPSON,HarrisburgChairmanoftheBoardofHarscoCorporation,DiversifiedmanufactureroflabrlcatedmetalproductsCHARLESH.WATTSII,LewisburgPresidentofBucknellUnivorsityExecutiveCommittee:JackK.Busby,chairman;Messrs.Cranmer.Hsrtman.JensenandSimpson.AuditCommittee:CliflordLAlexander,chairman;Mr.Jensen.Dr.PatrickandMr.Watts.TheCompanyfliesForm10-KannuallywiththeSecuritiesandExchangeCommission.Form10-KIscomposedofthisAnnualReporttoshareownersandadditionalInformationconcernIngtheCompanyandItsoperations.ThisadditionalInformationwillbeavailablewithoutchargeafterApril1,1976bywritingtoPennsylvanIaPower&LightCompany,TwoNorthNinthStreet,Allentown,Pa.18101,attention:Mr.GeorgeI.Kllne,InvestorServicesManager.28 PP&LDirectorsSIMPSONBUSBYI>>Ml\I1CCRANMERFORTUNEDESSENJENSENt'LEWISHARTMANNOBLEWATTSI0trNRCI,PATRICKROBERTSONALEXANDER+;Ir..Manyofthephotosaboveweretakenatthetwo-daySeptemberboardmeetingduringwhichthedirectorstouredtheSusquehannanuclearplantconstructlonsite. PpaLPENNSYLVANIAPOWER8LIGHTCOMPANYTwoN'orthNinthStreet,Allentown,Pa.18101Telephone:AreaCode215821-51518ULKRATEU.S.POSTAGEPAIDAllenlewn,Pa.PermitNo.l04LITHOIHU.S.A. RegulatoryDocket.F~il ,)$,y.">>>>>>VaEXECUTIVEVICEPRESIDENT'SREPORT>>WilliamF.MatsonThebusinessofAlleghenyElectricCooperativeisverysimple-thatofpowersupplytothemembership.Fromthatpointon,itbecomeslesssimple-notonlypowersupplybutanabundanceofpoweratthelowestpossiblecosts.Thathelpstoconfusetheissue.Inordertoaccomplishitssingleobjective,Allegheny,duringthecomingyear,willbespendingasignificantamountoftimeonfoursubjects:capitalcredits,loadmanagement,long-rangefuturepowersupply,andthedecisiononthedepthofourinvolvementingenerationandtransmission.Ourlong-rangeprojectionsshowthatAllegheny'smemberswillrequire1,000MWoffirmcapacity.Eventoday,our137,000membersusenearlyoneandahalfbillionKWH.Ofthis,nearlytwiceasmuchisusedinthewinterascomparedtothesummer.Thisthrowsadisportionateshareofourcosts,load,andneedsforthesystemintohalfoftheyear.Alongwiththemanystudieswhichweconstantlykeepcurrent,severalnewstudiesofinteresttothemembersarecurrentlyinprogress.Adetailedfeasibilitystudyisbeingconductedtodeterminewhetherornoteconomicsdictatethatweshouldgetinvolvedinself-generationandtransmissionownership.Almostconcurrentlywiththisstudy,weareconductingasiteselectionandfuelsupplyavailabilitystudy.Shouldthisfeasibilitystudyshowthedesirabilityofbuildingself-generationplants,aswesuspectitverywellmay,wewillalreadyhavesomeideaastoagenerallocationandapotentialsourceoffuel.Likeacrosswordpuzzle,onlyonepiececanbeputinatatime;butwhenseveralpeopleworkonthecrosswordpuzzleanumberofdifferentpiecescanbespottedsimultaneously.ThatiswhatwearetryingtodowithAllegheny.ThebusinessofaG&Trevolvesaroundpeopleandfigures.Thisannualreportisrepletewithstatisticsanddataintheformoftables,graphs,andchartsinorderforyoutovisualizetheprogressandgrowthofyourpowersupplycooperative.Inadditiontothestudiesconcurrentlybeingmaderegardingcoalfiredgeneration,wearecontinuingfullspeedaheadonourstudiesforconstructionofadditionalhydroprojects.EachofyourecognizetheimportanceoftheblendofhydrowhichwehavebuiltintoAllegheny'sratebasetothemembership.EachofyoualsorecognizesthegreatamountofcarefulworkthatmustbedonebyyouandbyAllegheny'sstaffinordertocontinuethoseratiosascloselyaspossible.WeareproudofAllegheny'srecordandthinkthatthe10yearresultsshowanexcellentstewardship.Buttrulythepastisprologueandourthoughtsmustbeconstantlygearedforthenext10to20years.Ibelievethatthereportsoftheofficers,managers,andstaffofthisorganizationgivenattheannualmeetingwillgiveyouaconcisepictureofthemethodsweplantouseinordertoaccomplishthegoalsandobjectivesoutlinedinpreviousannualbudgetandworkplanreportstothemembership.Paramountofcourse,inaruralelectricG&Tisthestrongandenthusiasticsupportofitsmembers.Forthat,wethankeachofyou. PRESIDENT'SREPORTReubenYoselsonAlthoughthisismyfirstreportasthePresidentofAlleghenyElectricCooperative,asapastpresidentofmylocalcooperativeandasamemberofAllegheny'sboardandaninterestedonlookerformorethan20years,Ihavelongsharedtheagonyofdefeatandtheecstacyofsuccesswithyou.Theroleoftheboardofdirectorshaschangedsignificantlyovertheyears.MostofthischangeisofcourseduetotheincreasedsophisticationofthetimesandoftheoperationofAllegheny.Still,theboardmustprovideitsprimaryfunctionofbeingapolicymakingbodyandasoundingboardformanagementtouseinproposingthenewprograms,techniquesandtechnologiesnecessaryinorderforustoaccomplishourobjectives.ManyofusareconcernedaboutthechangingmembershipofourmembercooperativesandtheresponsibilitythatAlleghenydirectorsshareintryingtoaccomplishtheseeminglyimpossibleobjectiveoflow-costpowertothemembers.Still,directorsareremissintheirresponsibilityiftheydonotcarefullyandcontinuouslyinformthemselvesofthesuccessthatAlleghenyhashadinmeetingthisobjectiveandinturnpassingonthefantasticsavingsofwholesalepowertothemembercooperatives.Youmustbeabletorelatetoyourindividualmembershipthesuccesseswhichyouhavehadandtotranslatethosesuccessesintothecomparativelylowerrateswhichruralelectricmembersarecurrentlyenjoying.Mostquestionscanonlybeansweredwiththequestion:comparedtowhat?Yes,wemustallagreeelectricitycostsarehighbutcomparedtowhat,orcomparedtowhose,orcomparedtowhatothersource?Whenthesequestionsarecarefullyexploredandcarefullyansweredtoourmembership,weshouldhope'thattheanswerswillsatisfythequestionsofthemembers.Theseareindeedtryingtimesandtheytakestrongactiontocounteracttheadversitieswhichconfrontus.Wemustmakenosmallplans-ourplansmustbestrong,theymustbeadequatetomeetthetestsofthetimesandtheymustbesufficienttoaccomplishourobjectives.Asyourpresident,Iseekyouradvice,counsel,guidanceandstrongsupportoftheattainmentofthesegoals. Lelttoright:MyronLudwick,LloydDugan,Sr.~RobertE.Leonard,HarrisHorn,DennisShaffer,JohnAnstadt.ReubenYoselson,BenjaminSlick,HiramW.Walker,DanielA.Clark,ClairO.Bulerbaugh,A.D.Stainbrook.Missingfromphoto:JamesHenderson,WilliamJ.McDanel.CO-OPADDRESSESANDDIRECTORSAdamsElectricCooperative',Inc.P.O.Box130Gettysburg,PA17325HarrisS.Horn,DirectorSomersetRuralElectricCo-op,Inc.127E.FairviewStreetSomerset,PA15501HiramW.Walker,DirectorBedfordRuralElectricCo-op,Inc.P.O.Box335Bedford,PA15522DennisShaller,DirectorSouthwestCentralREC,Inc.P.O.Box70,AirportRd.~R.D.4Indiana,PA15701ClairO.Buterbaugh,DirectorCentralElectricCooperative,Inc.P.O.Box329Parker,PA16049WilliamJ.McDanel,DirectorSullivanCountyREC,Inc.Forksville,Pennsylvania18616JohnAnstadt,DirectorClaverackRuralElectricCo-op,Inc.Towanda,PA18848ReubenYoselson,DirectorSussexRuralElectricCooperative22E.MainStreetSussex,NJ07461JamesL.Henderson,DirectorNewEnterpriseRuralElectricCooperative,Inc.NewEnterprise,PA16664BenjaminSlick,DirectorNorthwesternRuralElectricCooperativeAssociation,Inc.R.D.1CambridgeSprings,PA16403A.D.Stainbrook,DirectorTri-CountyREC,Inc.22N.MainStreetMansfield,PA16933LloydDugan,Sr.,DirectorUnitedElectricCooperative,Inc.Box477DuBois,PA15801RobertE.Leonard,DirectorValleyRuralElectricCo-op,Inc.Box477Huntingdon,PA16652DanielA.Clark,DirectorWarrenElectricCo-op,Inc.320E.MainStreetYoungsville,PA16371MyronLudwick,Director ALLEGHENYOFFICERSPresident--ReubenYoselsonVicePresident-WilliamJ.McoanelSecretary-JohnAnstadtTreasurer-MyronLudwickSTATISTICSNo.ofmembers-14No.ofconsumers,-136,845TotalKWHpurchased-1,355,237,657Non-coincidentdemand-322,176VITALCOOPERATIVESTATISTICSPACo-opAdamsBedfordCentralClaverackNewEnterpriseNorthwesternSomersetSouthwestCentralSullivanSussexTri-CountyUnitedValleyWarrentofConsumers12,6485,76317,63710,4972,12312,8428,14813,7693,7485,83212,37412,51511,9696,980MilesofLine1,9769582,6202,1212652,0381,6681,9776813592,3332,4291,865912ConsumersPerMileofLine6.46.06.74.58.06.34.97.05.516.25.35.26.47.7TotalKWHPurchased151,103,20064,733,800136,810,000120,014,83926,659,600153,083,908101,779,500158,168,73232,714,94159,708,50097,091,16095,I78,000122,539,00035,652,477AnnualPeakDemand38,48314,97631,00227,9896,2133327223,40632.0278,89214.34027,73224,38028,13511.329TOTALAverage136,8459,77522,2021,5861,355,237,657322.1766,9 TREASURER'SREPORTALLEGHENYELECTRICCOOPERATIVE,INC.BALANCESHEET-31DECEMBER1975and1974ASSETSTotalUtilityPlantinServiceTransmissionStationEquipmentTotalUtilityPlantAccumulatedProvisionforDepreciationNetUtilityPlantInvestmentsinAssociatedOrganizationsCash-GeneralFundsTemporaryCashInvestmentsReceivablesTotalCurrentandAccruedAssetsTotalAssets1975$10,36826,98937,3574,60332,7541,757,6873,4771,030,0002,066,7784,857,942$4,890,6961974,$8,70626,98935,6952,63033,0651,010302,841200,0002,335,1522,837,993$2,872,068LIABILITIESMemberships'atronageCapitalDonatedCapital-MembersDonatedCapital-NonMembersDeficitMarginTotalMarginsandEquitiesLong-TermDebt-NRUCFCAccountsPayableTotalLiabilities19752,8001,600,10729,31634981,632,5721,070,0602,I88,064$4,890,69619742,800990,22129,316349~22.2031,000,483-1.871,585$2,872,068 TREASURER'SREPORT(CONT'D)MEMBERAdamsElectricCooperative,Inc.BedfordRuralElectricCooperative,Inc.CentralElectricCooperative,Inc.ClaverackRuralElectricCooperative,Inc.NewEnterpriseRuralElectricCooperative,Inc.NorthwesternRuralElectricCoop.Assn.,Inc.SomersetRuralElectricCooperative,Inc.SouthwestCentralRuralElectricCooperativeCorp.SullivanCountyRuralElectricCooperative,Inc.SussexRuralElectricCooperativeTri-CountyRuralElectricCooperative,Inc.UnitedElectricCooperative,Inc.ValleyRuralElectricCooperative,Inc.WarrenElectricCooperative,Inc.1975$2,239,700.31924,101.491,943,324.941.743,370.66388,314.672,197,618.661,490,125.572,243,091.20469,767.07856,103.991,424,850.381,373,438.001,766.102.36528.526.07$19,588,"435.37974$1,808,333.04790,212.091,643,603.731,524,959.90320,010.441,906,421.251,221,326.781,826,916.88413,220.36675,834.561,234,845.17$,161,517.961,488,658.48460.336.42$16,476,197.06POWERPURCHASEDBYALLEGHENYPowerAuthorityoftheStateofNewYorkPennsylvaniaElectricCompanyMetropolitanEdisonCompanyWestPennPowerCompanyNewJerseyPower&LightCompanyTotalPurchasedPower$3,694,665.007,366,418.141,253,214.792;258,409.451.205.369.05$15,778,076.43$3,089,120.737,127,064.48822,408.601'69,168.14995.814.52$13,203,576.47PowerAuthorityoftheStateofNewYorkPennsylvaniaElectricCompanyMetropolitanEdisonCompanyWestPennPowerCompanyNewJerseyPower&LightCompanyTotalPurchasedPower19755.0219.4122.6718.2020.1911.64MILLS/KWH19745.0316.5416.3610.2919.0310.47 TREASURER'SREPORT(CONTD)TRANSMISSIONCHARGESNewYorkCompaniesG.P.U.CompaniesTotalTransmissionExpenseTotalPurchasedPowerTotalPowerSupplyExpenseOtherExpensesTotalOperatingExpenses1975$624,000.002,352,337.20$2.976,337.2015,778,077.0018,754,414.20273.131.00$19,027,545.201974$494,149.081,952,468.48$2,446,617.5613,203,576.4715,650,194.03221,697.00$15,871,891.0324.023.022.021.020.019.018.017.0--AVERAGECOSTPAIDTOPASNY..AVERAGESUPPLEMENTALCOSTAVERAGEALLEGHENYTOTALCOSTe~~~~~~~f~'~~~~~~~~~~~,~~~~~~~~~~16.015.0XQ14.013.0l2.011.010.0~~~~~~~0~~~~t~y~~~~8.07.06.05.0403.02.01.00.0AYJULSEPNOVJANMARMAYJULSEPNOVAUGOCTDECFEBAPR.JUNAUGOCT197419751976 POWERPURCHASED31DECEMBER1975MET.EDISON4.08%WESTPENNJCPL9.16%4.40%PASNY54.35%PENELEC28.01%TOTALKWH-1,355,237,659ADMINISTRATIVEandGENERAL1.44%COSTOFOPERATIONS31DECEMBER1975WESTPENN11.87%JCPL6.33%METEDISON7orq<NEerod1g+gO~o+OPASNY19.42%c5'PUWHEELINGgg12.36%NYWHEELING3.28%~O0PENELEC38.71%o~~st51.63%' 3403201975300197428019731972o2602401971MONTHLYMWDEMAND2202001801970160140120100JANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDECYEARLYKILOWATTHOURSKWH(MILLIONS)15001400130012001100100090080019705.57%INCREASE19711439%INCREASE19726.88%INCREASE1.11.".'i19737.45%INCREASE~0~~~~~~0~~~~~~~~~~0~~~~~~~~~~~~~~~~~~~~~~~~~~~~'~~~~4~~~~~~~~~~~~~0~~~00~~~~~~~~~~~~~~~0~~~~~~~~~4~~~~~4~~0~~~~~~~~0~~4~~~~~~~~~~~~~~~~~4~~~~~~~~~~6.77%INCREASE~~~~~~~~~~~~~~~~tYo~oV~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\~~~~~~~~~~~~~~~~~~~~~~~~~~~~t~~~~~~~~~~~~~~~~t~~~~~oVt~0~~iV~~~~~~~IVY~~\~~~4Yt~oV~~~~~~~~~~~~~~~~~~tVoY~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Vt~~~~~~~YIVo~~~~~~~~~~~~~~~~~~~~~~~~~IVY~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Vt~~~~~~~~~~~~~~~~~~~~~~~~~~~~i~~~~~~~~~~~~~~~~~~\OVo~~~~~~~~~~~~~~~~~~~~~oVSVtIVY~~~~~~~~~~~~~~~~~~~~~~~~VoVo~~~~~~~VIVI~~~\~~~~~~~~~~~~~~~~~~~IVY~~~~~tVt~~~~~~~~~~110~~~~~tV4Vt~~~~~~~~~~~~~1YotVt~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OIO~~~~~~1Vo~~~~~~~~~OV11974197510 DEPARTMENTOFENGINEERINGANDPOWERSUPPLY(LtoR)GaryFries,RichardOsborne,HarlanSaverson,JosephZuiioHarlanM.Severson-DirectorofPlanningJosephD.Zullo-StaffEngineerRichardOsborne-StaffEngineerGaryFries-StatisticianSouthernEngineeringCompanyofGeorgia-ConsultingEngineersTheprimaryresponsibilityoftheEngineeringandPowerSupplyDepartmentistoinsureareliableandadequatepowersupplyforallofAllegheny's14memberruraldistributioncoopera-tives.Inordertomeetthisresponsibility,theDepartmentcontinuallypreparesandupdateslongrangepowerrequirementprojectionsforeachmemberandthenfocusesonthenecessaryfutureplanningneededtoinsuretheserequirements.PowersupplyplanningforAllegheny'smembersinvolves:(1)negotiationswithpowersuppliersforthepurchaseandtransmissionofenergyatreasonableratesapprovedbytheFederalPowerCommission,(2)jointownershipinashareofthreenew,efficient,nucleargeneratingunitswhicharebeingconstructedbymajorcompaniesofthePennsylvania,NewJersey,andMary-landInterconnection,(3)emphasizingtheurgentneedforthedevelopmentofallpotentialhydroelectricgeneratingsitesthroughoutPennsylvania,and(4)preparingtheinitialfeasibilitystudiesneededtoimplementaconsumerorientedloadmanagementandenergyconservationprogramthroughoutthemembercooperatives.Asidefrompowersupplyplanning,theEngineeringandPowerSupplyDepartmentisalsoresponsiblefordeterminingthewholesalepowerratewhichAlleghenyappliesequallytoeachmembercooperative.Also,theDepartmentprovidesanumberofadditionalservicestothemembers.Theseservicesincludecostofserviceandretailratestudies,ratecasesbeforeStateRegulatoryCommissions,andengineeringcoordinationbetweenAllegheny,itsmembersandtheprivatepowercompanies.TheenergysituationfacingthisNationandtheWorldtodaydictatestheneedforsoundsystemplanning.TheEngineeringandPowerSupplyDepartment,inconjunctionwithSouthernEngi-neeringCompanyofGeorgia,themembercooperativesandtheirconsultingengineers,willcontinuallystrivetofurtherAllegheny'smainobjective-asufficientsupplyoflowcostelectricalenergytotheruralconsumer-ownersofitsmembercooperatives,nowandinthefuture. LEGALSERVICESANDRESEARCHMarianSchwalmFurmanJamesMurraySueVertolliMarianSchwalmFurman-GeneralCounselandDirectorofResearch-ResearchAssistant-SecretarytoLegalDepartmentandExecutiveVicePresidentGeneralCounselrepresentsAlleghenyinlegalaspectsofitsdealingswithitsmembersandwithotherentities.ReviewandinterpretationotFederalandStateStatutes,regulatorydirectivesandcourtdecisionsaswellasadviceoncomplianceareamongthelegalservices.Researchisconductedandtestimonypreparedforpublicagenciesonproposedlegislation,pendingad-ministrativeactions,andotherpowersupplyproblemsaffectingthecooperatives.SpecialCounsel,WilliamC.Wise,isretainedonacontinuingbasisformattersrequiringspecialexpertiseinpowersupplynegotiations,proceedingsbeforeregulatoryagenciesandlitigation.ADMINISTRATIVEASSISTANTANDDIRECTOROFSPECIALPROJECTSHarlanSeversonHarlanSeverson-AdministrativeAssistant&DirectorofSpecialProjectsOnMay1,HarlanSeversonjoinedthestaffofAllegheny,havingworkedpreviouslyforagenerationandtransmissioncooperativeinSouthDakotafor18yearsandasaCongressionalandSenateaideforthepast5years.HeisnowparticipatinginthenegotiatingsessionswithPennsylvaniaPowerandLightandhasbeenassignedasDirectoroftheDepartmentofEngi-'neeringandPowerSupply,onatemporarybasis.OFFICESERVICESC.DonaldBlackburnC.DonaldBfackburnStellaRoadcapRitaMartinezDarleneJonesLeeSitton-OlficeManager-AssistantBookkeeper-GeneralOffice-GeneralSecertary-ReceptionistandSecretaryTheOfficeServicesDepartmentmaintainsthebudget,booksofaccount,payrollrecordsandallbillsandpayments.Allquarterlyandannualtaxreturns,andotherfinancialreportsarepre-pared.AffairsoftheOfficeServicesDepartmentarecoordinatedwithactivitiesoftheotherdepartmentsoftheCooperativeinordertogivemaximumservicestomembers.12 MEMBERSERVICESWilliamLoganr~r'illiamLogan-DirectorCommunityDevelopmentandMemberServicesMaryJoKeating-AssociateEditor,PENNLINESPattiStevens-SecretaryThisdepartmentisinvolvedwiththeprimaryfunctionofprovidingandexchanginginformationwiththemembersystemsandthegeneralpublic.Themanyactivitiesrequiredinthisinforma-tionprogramarecenteredaroundthemonthlypublicationofPENNLINES,newsletters,memos,newsreleasesandthemiscellaneouscorrespondence.TheMemberServicesstaffisresponsi-bleforcoordinatingandextendingactivitiesconductedbylocalelectriccooperativesincludingpowerusepromotions,youthactivities,women'sprograms,andavarietyofmeetingsandconferences.LegislativeresponsibilitiesaresharedwiththelegaldepartmentPENNLINESistheofficialmonthlypublicationofPennsylvania'sRuralElectricCooperatives.SinceitsinceptioninOctober,1966,PENNLINESisthevoiceofover137,000ruralelectricmembersthoughtouttheservicearea.PENNLINESisdesignedtokeepmembersinformedoftheirprogramsandprogress.PENNLINESstaffincludes:EditorWilliamF.Matson,ManagingEditorWilliamLoganandAssociateEditorMaryJoKeating.JOBTRAININGANDSAFETYRobertHornRobertS.Horn-DirectorRobertSpangler-InstructorThisprogrambringstoallemployeesprogramsdesignedtohelpthemaccomplishtheirjobsinthesafest,mostefficientmannerinordertopreventaccidentsandtobringtothemembershipthebestpossibleservice.Specifictrainingprogramsaresodesignedastoappealtoandmeettheneedsoftheemployeesofthecooperative.Theuseofprotectiveequipmentisdemonstratedandencouragedonallthosejobswherethereisaneed.Specialinformationprogramsareusedtoinstructemployeesinthecorrectprocedurestobeusedincaringforavictimintheeventanaccidentshouldoccur.Oneoftheobjectivesofthesafetyprogramistoworkwiththeco-opstoestablishpubliceducatiorlprograms,suchasthehighvoltagedemonstration,toincreasethepublic'sawarenessastothehazardsinvolvedinelectricaldistributionlinesanduseinthehome.Thisdepartmentisalsoresponsibleforkeepingabreastofnewdevelopmentsinthefieldofelectricaldistribution,andforthecoordinationofotheractivitiesthatwillenhancetheruralelectrificationprogramonalocallevel.13 TERRITORIALINTEGRITYTheyear1975sawthepassageofSenateBill719bytheGeneralAssemblyanditsapprovalbyGovernorMiltonJ.ShappwhichsuccessfullyconcludedafifteenyeareffortonthepartoftheRuralElectricCooperativestosecureterritorialintegrityfortheirareasofservice.Amodelforotherstatestocopy,thislegislationisatributetoallruralelectricleaderswhoworkedlongandhardforitspassageandtothegreatdemocraticsystemofgovernmentunderwhichweliveandprosper.HEADQUARTERSBUILDINGAllegheny'snewcorporateheadquarters,aseven-story,63,000squarefootcommercialofficebuilding,willnotonlyprovideAlleghenywiththespacetofunctionatpeakefficiencybutbyrentingourexcessspace,givesusthebesteconomicpackageaswell.The3.5milliondollarconstruction,joiningHarrisburg'surbanrenewalproject,willbeequippedtodealwiththesophisticatedproblemsofcontemporarybusiness,suchasaudio-visualcommunications,in-housemeetingandconferencespacetosavemoneyandtime,andagood,logicalofficesystemtoupgradethequalityandquantityofproductivity.NUCLEARNEGOTIATIONSNegotiationsforAllegheny'sjointownershipinthreenucleargeneratingunitscontinuedthroughout1975withthePennsylvaniaPowerandLightCompanyandtheGeneralPublicUtilitiesCorporation.Hopefully,agreementssuitabletoallpartiescanbeconcludedin1976.HYDRO-POWERPOTENTIALThemaximumdevelopmentofhydro-powerinPennsylvaniahaslongbeenoneofAllegheny'smajorconcerns.Developmentsin1975indicatethatthelongawaitedinstallationofhydrogeneratingfacilitiesatRaystownDammaybecomearealityinthenotsodistantfuture.However,hydro-powersufferedasevereblowwhenconstructionofthemulti-purposeTocksIslandLakeProjectwasdeferredbytheDelawareRiverBasinCommission.OnlyGovernorShappofPennsylvaniacontinuedtopressfortheimmediateconstructionofTocksIsland.Nowhowever,theCityofPhiladelphiaandseveralNewJerseycommunitiesareseeingmunicipalwatersho'rtages,sowemaygetTocksbackontopagain,14 PEOPLE0POWER<PROGRESSOneofthewaysAlleghenyfurthersitsobjective-obtaininglowcostpowerfortheruralconsumer-ownersofitsmembercooperatives-isbyaffiliationwithstateandnationalorganizationswhoseinterestsparallelourown.WemaintaincloseliaisonwithPennsylvaniaRuralElectricAssociation,theserviceorganizationforAllegheny'smembers.PREAsupportsjointactivities,suchasgrouppurchasing,thatelectriccooperativesinPennsylvaniaandneighboringstatescanengageinmoreeconomicallyonagroupbasis.ActingasatradeassociationPREAfurnishesawiderangeofserviceshelpfultoAlleghenyanditsmembers.AlleghenyisamemberofNationalRuralElectricCooperativeAssociation,PREA'snationalcounterpart.NRECAmaintainsprogramsforitsmembershipinmanyfieldssuchassafetyandjobtraining,retirementbenefits,insurance,managementtraining,personnelpayscalesandorganization,andwholesalepowersupply.NRECAalsosupportsinternationalcooperationandprovidesassistancetoruralelectriccooperativesindevelopingnationsboththroughtheU.S.AIDprogramandthroughrelatedcontracts.Severalmanagersandothersfromourmembercooperativesandoneofourstafrmembershavespentvaryingamountsoftimeworkinginforeigncountriestohelpthemdeveloptheirprogramsforprovidingelectricservicetothepeoplethroughcooperativeprograms.WeparticipateinthenationalactivitiesoftheAmericanPublicPowerAssociation,withAlleghenystaffmembersonitsRateCommittee,LegislativeCommittee,PowerSupplyPlanningCommittee,andManagementAdvisoryCommittee.Throughtheseactivitiesaswellasattendanceatitsnationalmeetings,wekeepintouchwiththebestinformedopinionofoutstandingleadersinthepubliclyownedandconsumerorientedsegmentoftheelectricpowerindustry.ThetraditionalmajorsourceoffinancingforcooperativegeneratingfacilitieshasbeenTheRuralElectrificationAdministration.Throughoutits40yearhistory,REAhasmadeloansto1,069ruralelectriccooperativesandpubliclyownedsystems,andalsoto25investor-ownedprivateutilities,forthepurposeofgettingelectricityintoruralareas.Ruralelectriccooperativeshaveestablishedanoutstandingrepaymentrecord.NoAlleghenymembercooperativehaseverbeendelinquentinpaymentsonthetotalofalmost$100milliontheyhaveborrowed.AlleghenyhasneverborrowedfromREAbutisnowintheprocessofpreparingforaloanapplicationaspartofthefinancingofitspartownershipinnuclearplantsandtransmissionlines.TheNationalRuralUtilitiesCooperativeFinanceCorporation(CFC)hasbeenestablishedbyruralelectriccooperativesnationwidetomeetpartoftheirconstantlyincreasingcapitalfinancingneeds.AlleghenyisamemberofCFCandisengagedinpreliminarydiscussionstowardobtainingpartofitsnear-futurefinancingfromthissource.Inrecentyearsreliabilitycouncilshavebeenestablishedwithintheelectricutilityindustry,pursuanttoordersissuedbytheFederalPowerCommission.Cooperativesandmunicipalutilitiesserveonboardsorcommitteesofthesecouncils,therebymaintainingliaisonwithinvestor-ownedbulkpowersuppliersonpowerplanningandservicereliability.AlleghenyparticipatesasanassociateontheMid-AtlanticAreaCouncilExecutiveBoardandasamemberoftheEastCentralAreaReliabilityCouncilLiaisonCommittee.AnAlleghenystaffmemberalsorepresentsPennsylvaniamunicipalutilities,undertheaegisofthePennsylvaniaMunicipalElectricAssociation,onthereliabilitycouncils. PENIISVLSNIIIRORIILELECIRICCOOPERRTIUESProvidingLow-CostDependableElectricityto137,000Member.ConsumersinpennsylvaniaandNewJerseyeServingIn47Countiese150Directors-700Employeese22,000MilesofLinee1.4BillionKWH'sPurchasedAnnuallye137,000Member-Ownerse$128,000,000InvestedInPlantRETTYORKOHIOrsmroHvrrs)ClETEBACKBUBAl,GECTBICrCOOPEBATITEtowakca'.-."rr-~---------PISUGITABCOUBIY0le04LCOOPEBATffE.GECTBICCOOPEBATIIEjvourrosvnracLucarcossprurrosoeeetoeeeelwlelr]Ir--~-yII4e,eee'~-~I~I/ICEIIIBAlQECTBICB~IUBITEDGEfBICCOOPERATIYErS'OOPEBAIIYEP~SoIreos~elelllir~r./~NW4o-~i/eeeeOCa~aW/'~/CW~/!~~ggggIe'eFt-"/OCUweecornrvssvapWTNrRECfJERSEYeel0olceletrQECTBjCCOOPEBATITE/7>BUBAlQECIBIC'eajeeeo~sJwceoler---gr'~ofiAtAIISGECTBICCOOPEBITTE)SOREBSETBUBAlfBEDFOBDBUBAli~//i/////J~IBllsllQEfBIC/-Irslal15.e~~/~vorwsvrLLs~-~r'r'l/V~'e/>GECIBICCOOPEBA~sussa1ceeeeery'ergegfeeeeeieWeo~eoweeeeeoeeCIARYEARDIRRIIIIA RegistrationNo.2-SECURITIESANDEXCHANGECOMMISSIONWASHINGTON,D.C.20549FORMS-7REGISTRATIONSTATEMENTUnder't:CURtyl:SltgE'>:CHAhGECQ!tl'it!SSlGtiP~ECt:-IVEDNQV]11977THESECURITIESACTOF1933OFFICEOFRHPOPTSJp~~~&trpnT(p[c;p;<q"vppgPennsylvaniaPower8tLightCompany(ExactnameofregistrantasspecNedinitscharter)CommonwealthofPennsylvania(Stateorotherjurisdictionofincorporationororganization)TwoNorthNinthStreet,Allentown,Pennsylvania(Addressofprincipalexecutiveoffices)23-0959590(I.R.S.EmployerIdentificationNo.)18101(ZtpCode)Registrant'stelephonenumber,includingareacode:215-821-5151R;R.FORTUNE,ExecutiveVicePresident-Financial'woNorthNinthStreetAllentown,Pennsylvania18101(Nameandaddressofagentforservice)Copyto:CHARLESA.READ,Esq.Reid&Priest40WallStreetNewYork,N.Y.10005Approximatedateofcommencementofproposedsaletothepublic:AssoonaspracticableafterthisRegistrationStatementbecomeseffective.CALCULATIONOFREGISTRATIONFEETitleofeachclassofsecuritiestoberegisteredAmounttoberegisteredProposedmaximumofferingpriceperunit'roposedmaximumaggregateofferingprice'mountofregistrationfeeFirstMortgageBonds,%Seriesdue2007$100,000,000102%$102,000,000$20,400Forthepurposeofcalculatingtheregistrationfeeonly.TheregistrantherebyamendsthisRegistrationStatementonsuchdateordatesasmaybenecessarytodelayitseffectivedateuntiltheregistrantshallfileafurtheramendmentwhichspecificallystatesthatthisRegistrationStatementshallthereafterbecomeeffectiveinaccord-ancewithSection8(a).oftheSecuritiesActof1933oruntiltheRegistrationStatementshallbecomeeffectiveonsuchdateastheCommission,actingpursuanttosaidSection8(a),maydetermine. PENNSYLVANIAPOWER&LIGHTCOMPANYFormS-7ItemNo.1~230~4..5..78..9..10o~~~~1~~~~~~~i0~~12CrossReferenceSheetforProspectusHeadingInProspectusCoverPageofProspectusPurchasersApplicationofProceedsConstructionProgramFinancingConstructionProgramFinancingBusiness.ElectricStatisticsMapStatementofIncomeStatementofChangesinFinancialPositionStatementofEarningsRelnvested*CoverPageofProspectusDescriptionofBondsFinancialStatementsOpinionofIndependentCertifiedPublicAccountantsInsideFrontCoverofProspectus*OmittedfromProspectusasItemisinapplicableoranswerisinthenegative. J', CIED~ElEO~~LIEELDCLICOl~LIEOOI~DEOEOEDEIIEDEDEO~DLEDLIED~~CkDLOD~eaEDEDZCLOIDL~~tlLI~EllEO~D~DCCIClC-~%EOED~EDPJLIClILI~'EEOEOPlEECEEDCD~maEDCl'EEIEO.~DEIIEIICDEOEII~EOLEEDEDIClEDCLlOEDDLED~OE~n~IIEII~Cl40EEIE~DEIIED~OLILEtl~EOcnR=-EEI>ElEOED~~~LEIEDOEDED.~~OI.EDEDEEICCCngLCLEIILICELE~O~ED~OI~.C3!ILI4CJaJAOIOlLIE/I~~El~C-ED,LEED~CCEDLEEOCl~EDED,OI~CEOLI~D~CLIEnEIIPRELIMINARYPROSPECTUSDATEDNOVEMBER11E1977$100,000,000PennsylvaniaPower&LightCompanyFirstMortgageBonds,%Seriesdue2007InterestpayableJune1andDecember1DueDecember1,2007TheBondswillberedeemableatanytimeattheapplicableGeneralandSpecialRedemptionPricessetforthherein,withaccruedinteresttothedatefixedforredemption,exceptthatpriortoDecember1,1982noredemptionmaybemadeattheapplicableGeneralRedemptionPricewithorinanticipationoffundstobeborrowedhavinganeffectiveinterestcosttotheCompanyoflessthan%perannum.TheinitialGeneralandSpecialRedemptionPricesare%and%,respectively.See"DescriptionofBonds".THESESECURITIESHAVENOTBEENAPPROVEDORDISAPPROVEDBYTHESECURITIESANDEXCHANGECOMMISSIONNORHASTHECOMMIS-SIONPASSEDUPONTHEACCURACYORADEQUACYOFTHISPROS-PECTUS.ANYREPRESENTATIONTOTHECONTRARYIS.ACRIMINALOFFENSE.ThedateofthisProspectusisDecember,1977.ThisProspectusistobeusedinconnectionwiththePublicInvitationforBidsforthepurchaseoftheBonds.TheInvitationstatesthatbidswillbereceivedbytheCompanyatMorganGuarantyTrustCompanyofNewYork,MorganGuarantyHall,28thfloor,15BroadStreet,NewYork,NewYork,upto11:00A.M.,NewYorkTime,onDecember13,1977;orsuchothertimeanddateasmaybefixedbytheCompanyasprovidedintheStatementofTermsandConditionsRelatingtoBids,andthatCompanyofficersandcounsel,representativesofindependentcertifiedpublicaccountantsandcounselfortheprospectivePurchaserswillbeavailableatMorganGuarantyTrustCompanyofNewYork,MorganGuarantyHall,28thfloor,15BroadStreet,NewYork,NewYork,onDecember6,1977at11:00A.M.,NewYorkTime,toreviewwithprospectivebidderstheinformationwithrespecttotheCompanycontainedintheRegistrationStatementandthematterssetforthintheStatementofTermsandConditionsRelatingtoBids. INCONNECTIONWITHTHISOFFERING,THEPURCHASERSMAYOVER-ALLOTOREFFECTTRANSACTIONSWHICHSTABILIZEORMAINTAINTHEMARKETPRICEOFTHESECURITIESOFFEREDHEREBYATALEVELABOVETHATWHICHMIGHTOTHERWISEPREVAII.INTHEOPENMARKET.SUCHSTABILIZING,IFCOMMENCED,MAYBEDISCONTINUEDATANYTIME.TheCompanyissubjecttotheinformationalrequirementsoftheSecuritiesExchangeActof1934andinaccordancetherewithfilesreportsandotherinformationwiththeSecuritiesandExchangeCommission.Informationconcerningdirectorsandofficers,theirremunerationandanymaterialinterestofsuchpersonsintransactionswiththeCompany,asofparticulardates,isdisclosedinproxystatementsdistributedtostockholdersoftheCompanyandfiledwiththeCommission.Suchreports,proxystatementsandotherinformationcanbeinspectedandcopiedattheofficesoftheCommissionatRoom6101,1100LStreet,N.W.,Washington,D.C.;Room1204,EverettMcKinleyDirksenBuilding,210South
DearbornStreet,
Chicago,III.;Room1100,FederalBuilding,26FederalPlaza,NewYork,N.Y.;andSuite1710,10960WilshireBoulevard,LosAngeles,Calif.CopiesofthismaterialcanalsobeobtainedatprescribedratesfromthePublicReferenceSectionoftheCommissionatitsprincipalofficeat500NorthCapitolStreet,N.W.,Washington,D.C.20549.TheCommonStockoftheCompanyislistedontheNewYorkandPhiladelphiaStockExchanges.Reports,proxystatementsandotherinformationconcerningtheCompanycanbeinspectedandcopiedattherespectiveofficesoftheseexchangesatRoom401,20BroadStreet,NewYork,N.Y.,andat17thStreetandStockExchangePlace,Philadelphia,Pennsylvania.Inaddition,reports,proxystatementsandotherinformationconcerningtheCompanycanbeinspectedattheofficesoftheCompany,TwoNorthNinthStreet,'llentown,Pennsylvania.Nodealer,salesmanorotherpersonhasbeenauthorizedtogiveanyinformationortomakeanyrepresentationnotcontainedinthisProspectusinconnectionwiththeoffermadebythisProspectusand,ifgivenormade,suchinformationorrepresentationmustnotberelieduponashavingbeenauthorizedbytheCompany.ThisProspectusIsnotanoffertosellorasolicitationofanoffertobuyinanyjurisdictioninwhichitisunlawfultomakesuchanofferorsolicitation.NeitherthedeliveryofthisProspectusnoranysalemadehereundershall,underanycircumstances,createanyimplicationthattherehasbeennochangeintheaffairsoftheCompanysincethedatehereof.TABLEOFCONTENTSProspectusSummaryTheCompany.ProblemsAffectingtheElectricUtilityIndustryandtheCompany....................ApplicationofProceeds............................ConstructionProgram.Financing.RateMatters.StatementofIncome.Management'sDiscussionandAnalysisoftheStatementofIncome...................CapitalStructure..Page3445578101418Business..ElectricStatistics.DescriptionofBondsExperts.LegalOpinions.OpinionofIndependentCertifiedPublicAccountants.FinancialStatementsPurchasersMap.Page1930313535353655BackCover ServiceArea81%172100%PROSPECTUSSUMMARYThefollowingmaterialisqualifiedinitsentiretybythedetailedinformationandfinancialstatementsappearingelsewhereinthisProspectus.THEOFFERINGSecurityOffered..............~............FirstMortgageBondsPrincipalAmount...............$100,000,000InterestPaymentDates.......................June1andDecember1Maturity..................................December1,2007LimitationonRedemption...................Non-redeemablepriortoDecember1,1982throughcertainrefundingoperationsUseofProceeds...............Generalcorporatepurposesincludingthereductionofshort-termdebtincurredto(a)retirematuringlong-termdebtand(b)provideinterimfinancingforconstructionexpendituresTHECOMPANYBusiness.TheCompanyderivesabout99%ofitsoperatingrevenuesfromelectricserviceApproximately10,000squaremilesincentraleast-ernPennsylvaniawithapopulationof2.4millionpeopleSourcesofGenerationduringCoal...........................thetwelvemonthsendedOilSeptember30,1977Hydro........................~FINANCIALINFORMATIONOperatingRevenues(thousands).Netincome-BeforeDividendsonPreferredandPreferenceStock(thousands).EarningsApplicabletoCommonStock(thousands)...............EarningsPerShare..RatioofEarningstoFixedChargesActual.ProForma.......~UtilityPlant,Net-atendofperiod(thousands).....................YearEndedDecember31,1976$644,147$112,111~$78,743$2.682.53$2,380,109TwelveMonthsEndedSeptember30,1977$735,277$145,815$109,529$3.373.192.86$2,607,919AsofSeptember30,1977ActualAsAdjusted(1)Capitalization(thousands)Long-TermDebt(includingcurrentmatu-rities)..PreferredandPreferenceStock....................CommonEquity.Total$1,161,532437,375839,388$'I,261,532487,375841,669$2,438,295$2,590,576487%18.832.51000%(1)Asadjustedtogiveeffectto(i)$2,528,000ofCommonStockissuedlnOctober1977inaccordancewiththeCompany'sEmployeeStockOwnershipPlan,(il)thesaleof$50,000,000of8%SeriesPreferredStockinOctober1977and(lii)thesaleoftheBonds. lI THECOMPANYTheCompanyisanoperatingutility,incorporatedunderthelawsoftheCommonwealthofPennsylvaniain1920.TheCompany'sgeneralofficesarelocatedatTwoNorthNinthStreet,Allentown,Pennsylvania18101,anditstelephonenumberis215-821-5151.ThepropertyoftheCompanyislocatedinPennsylvania(seeMap),iswellmaintainedandisingoodoperatingcondition.TheCompanyderivesabout99/oofitsoperatingrevenuesfromsupplyingelectricservice,andthebalancefromsupplyingsteamforheatingandotherpurposesinthecityofHarrisburg.TheCompanyservesa10,000squaremileterritoryin29countiesofcentraleasternPennsylvania(seeMap),withapopulationofapproximately2,400,000persons.Thisserviceareahasahighpercentageofopenlandaswellas111communitieswithpopulationsover5,000,thelargestofwhicharethecitiesofAllentown,Bethlehem,Harrisburg,Hazleton,Lancaster,Scranton,Wilkes-BarreandWilliamsport.Importantindustrial,recreationalandagriculturalsectionsarelinkedtotheeasternpopulationcentersbyanextensivelimited-accesshighwaysystem.HersheyElectricCompany,asubsidiaryoftheCompany,provideselectricdistributionservicetoapproximately5,700customersinHershey,Pennsylvania.PROBLEMSAFFECTINGTHEELECTRICUTILITYINDUSTRYANDTHECOMPANYTheelectricutilityindustryingeneralhasbeenexperiencingproblemsof(a)increasingcostsoffuel,wages,materialsandequipment,(b)substantiallyincreasedcapitaloutlaysandlongerconstructionperiodsforlargerandmorecomplexnewgeneratingunits,(c)uncertaintiesinpredictingfutureloadrequirements,(d)increasedfinancingrequirementscoupledwithperiodicallyuncertainavailabilityofbothequityandborrowedcapital,(e)pastandprospectivesalesofcommonstockbelowbookvalue,(f)fuelavailability,(g)increasedconstructioncostsanddelaysandoperatingrestrictionsduetoenvironmentalrequirements,(h)theeffectivenessofenergyconservationeffortsandtheimpactoffluctuatingeconomicconditions,(i)litigationandproposedlegislationwhichmayhavetheeffectofdelayingorpreventingconstructionofnucleargeneratingandotherfacilitiesorlimitingtheuseofexistingfacilities,'nd(j)regulatorylagingrantingneededrateincreasesandtheinadequacyofsuchincreaseswhengranted.TheCompanyalsohasbeenexperiencingsimilarproblemsinvaryingdegrees.ForinformationregardingtheeffectontheCompanyofcertainofthesegeneralproblems,see"CONSTRUCTIONPROGRAM","FINANCING","RATEMATTERS","STATEMENTOFINCOME","MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME","BUSINESS"and"ELECTRICSTATISTICS".Congresscurrentlyisconsideringlegislationdesignedtoachieveenergyconservationthroughtheapplicationofvariousregulatoryandtaxmeasuresandtoencouragethedevelopmentanduseofrelativelyabundantdomesticfuels-primarilycoal.Inaddition,considerationisbeinggiventoprovisionswhichwouldrequirestateutilitycommissionstoadoptandenforceFederalratestandards.TheCompanyisunabletopredictwhatmeasures,ifany,willbeenactedorwhateffectsanymeasuresenactedwillhaveontheCompany.Referenceismadeto"BUSINESS-FuelSupply(Coal)"forinformationconcerning(1)thewrite-offofcertaindevelopmentcostsbyTheOneidaMiningCompany,oneoftheCompany'saffiliatedmines,andthepricingofcoalproducedbyOneidaforfueladjustmentclausepurposes,whichreducedtheCompany'snetincomebyapproximately$6.6millionand$3.6million,respectively,forthe"twelvemonthsendedSeptember30,1977and(2)thepossibilityoffuturelossesifpresentminingplansforOneidaprovenottobeeconomicallyfeasible. APPLICATIONOFPROCEEDSThenetproceedsfromthesaleoftheFirstMortgageBondsofferedhereby(theBonds)willbeaddedtotheCompany'sgeneralfundsandusedforgeneralcorporatepurposesincludingthereductionofshort-termdebtincurredto(a)retire$20.5millionofmaturinglong-termdebtand(b)provideinterimfinancingforconstructionexpenditures.CONSTRUCTIONPROGRAMTheCompany'sconstructionprogramisundercontinuingreviewandisrevisedfromtimetotimetoreflectchangesincustomer.demand,businessconditions,thecostandavailabilityofcapitalandotherfactors.ActualconstructionexpendituresanddatesofcompletionforvariousconstructionprojectsmayvarybecauseofchangesintheCompany'splans,costfluctuations,theavailabilityoflabor,materialsandequipment,environmentalregulations,licensingdelaysandotherfactors.Thefollowingtabulationshowsactualconstructionandnuclearfuelexpendituresfor1976andtheCompany'scurrentestimateoftheseexpendituresforthethreeyears1977-1979includingprovisionfortheAllowanceforfundsusedduringconstruction(Allowance).1976197719791979MillionsofDollarsConstructioncosts:Newgeneratingequipment...................Transmissionanddistributionfacilities..OtherTotalconstructioncosts....Nuclearfuelinprocess..Total.$295801939414$408$243$340921032138356481144$370$485$2941194746040$500*$280.7millionexpendedthroughSeptember30,1977.Estimatedconstructioncostsforthethreeyears1977-1979include$97millionforenvironmentalprotection.See"BUSINESS-EnvironmentalMatters"forinformationconcerningpossibleadditionalcapitalrequirements.TheCompany'sestimateofconstructionandnuclearfuelexpendituresduringtheperiod1977-1979hasbeenreducedtoreflecttheexpectedsaleofa10/oundivided'ownershipinterestintheSusquehannanuclearunitstoAlleghenyElectricCooperative,Inc.(Allegheny).PursuanttoagreementswithAllegheny,thissaleisexpectedtobeeffectedassoonaspracticablefollowingthereceiptofnecessaryapprovalsfromtheNuclearRegulatoryCommission(NRC)andtheRuralElectrificationAdministration(REA).TheproposedsalewasapprovedbythePennsylvaniaPublicUtilityCommission(PUC)inAugust1977. Pendingthereceiptoftherequiredapprovals,AlleghenymadeaninitialpaymenttotheCompanyof$65millioninMarch1977andbecameobligatedtopaycurrently10'/oofthesubsequentconstructionandnuclearfuelexpendituresfortheSusquehannaunits.ThroughSeptember30,1977Allegheny'spaymentstotheCompanyapproximated$79million.IntheeventthattheNRCandREAapprovalsarenotobtainedbyMarch16,1978,Allegheny'sinvestmentintheSusquehannaunitsisrequiredtoberefunded.ConstructionoftheSusquehannaunitsisproceedingunderNRCconstructionpermitsissuedinNovember1973.AtSeptember30,1977,constructionofUnitNo.1wasabout53/ocompletedandUnitNo.2wasabout36/ocompleted.AnoperatinglicensefromtheNRCwillberequiredpriortothestart-upandtestingofeachunit.ChangesindesignnecessarytomeetNRCrequirements,delaysindeliveryofmaterialandequipment,scarcityoflabor,environmentalregulationsandotherfactorshaveresultedinfailurestomeetcertainconstructionschedulemilestonesandhavecreatedahighprobabilitythatthecurrentlyscheduledin-servicedatesfortheSusquehannaunits-1980and1982-willnotbeachieved.Unlessconstructionprogressimprovessignificantlyandtherequiredlicensesandregulatoryapprovalsareobtainedonatimelybasis,thein-servicedatesforeachoftheunitswillbedelayed.However,pendinganevaluationoffutureconstructionprogress,theCompanyismaintainingthecurrentin-serviceschedule.TheestimatedtotalnetcapabilityofeachoftheSusquehannaunitsis1,050,000kilowatts.GivingeffecttoAllegheny'sexpectedownershipof10/ooftheSusquehannaunits,theCompany'sshareoftheestimatedtotalnetcapabilityofeachoftheunitswillbe945,000kilowattsanditsshareoftheestimatedconstructionexpendituresfortheunits(excludingnuclearfuel)iscurrentlyestimatedat$1.64billion.TheCompanyestimatesthataone-yeardelayofthein-servicedatesoftheSusquehannaunitswouldincreasetheCompany'sshareofthecostoftheseunitsbyabout$200million.TheUnitedStatesDistrictCourtfortheWesternDistrictofNorthCarolinahasheldthattheprovisionsofthePrice-AndersonActlimitingliabilityoftheownersofnuclearpowerplants,andofthecontractorsandsuppliersforsuchplants,totheamountsofavailableinsuranceandgovernmentalindemnityareunconstitutionalasviolatingthedueprocessandequalprotectionclausesoftheUnited.StatesConstitution.TheUnitedStatesSupremeCourthasgrantedreviewoftheDistrictCourtdecision.IftheSupremeCourtaffirmsthedecision,thelimitationofliabilitywouldnotbeavailabletotheCompany.AlthoughthefullimpactofadecisionbytheSupremeCourtcannotbeevaluatedatthistime,theCompanydoesnotexpecttochangeitsplanstocompletetheconstructionofandtooperatetheSusquehannaunits.RecentamendmentstothePrice-AndersonAct,whicharealsothesubjectofthislitigation,providethatallownersofnuclearreactorsmaybeassessedupto$5millionperoperatingreactorforeachnuclearincidentoccurringatanyreactorintheUnitedStateswithalimitoftwoassessmentsperyear.GivingeffecttotheCompany'sexpected90/oownershipoftheSusquehannaunits,theCompany'smaximumexposureunderthePrice-AndersonActwhenbothSusquehannaunitshavebeenplacedincommercialoperationisnotexpectedtoexceed$18millionperyear. FINANCINGThefinancingofitsconstructionprogramrequirestheCompanytoengageinfrequentsalesofsecurities,includingdebtandpreferred,preferenceandcommonstocks.Interimfinancingisobtainedfrombankborrowingsandthesaleofcommercialpaper.TheCompany's1977-1979constructionandnuclearfuelexpendituresarecurrentlyestimatedat$1.36billion.Approximatelytwo-thirdsofthisamountisexpectedtobeobtainedfromoutsidefinancingwiththebalancetobeprovidedfrominternalsources.TheestimatesofconstructionandnuclearfuelexpendituresandinternalfundssourcesbothincludetheAllowance.Inaddition,about$25millionofmaturinglong-termdebtobligationsand$14millionofpreferredandpreferencestocksinkingfundrequirementsareplanned-tobemetduring1977-1979bysalesofsecurities.Inadditiontothe$100millionexpectedtoberaisedbythesaleoftheBonds,during1977theCompanyobtained$67millionthroughthesaleof3.2millionsharesofCommonStockand$50millionthroughthesaleof500,000sharesofSeriesPreferredStock.ThroughSeptember30,1977theCompanyhasobtained$13.2millionthroughsalesofCommonStockunderitsDividendReinvestmentPlan.Theexactamount,natureandtimingoffuturesalesofsecuritieswillofnecessity'bedeterminedInthelightofmarketconditionsandotherfactors.ThemortgageindentureunderwhichtheCompany'sfirstmortgagebondsareissuedcontainscertainprovisions,principallyearningscoverageandpropertyadditionstests,limitingtheissuanceofadditionalbonds.See"DESCRIPTIONOFBONDS."TheCompanyestimatesthatapplicationoftheserestrictions,ofwhichtheavailabilityofpropertyadditionsispresentlythemostlimiting,wouldhavepermittedtheCompany,asofSeptember30,1977,aftergivingeffecttotheproposedsaleofa10/oundividedinterestinSusquehannatoAlleghenyandthesaleoftheBonds,toissueabout$396millionprincipalamountofbonds.ThisamountexceedstheprincipalamountofbondsthattheCompanyexpectstoissuethrough1979.TheCom'pany'schartercontainsprovisionslimitingtheissuanceofadditionalsharesofPreferredStock.ThemorerestrictiveoftheseprovisionsrequiresIncomeBeforeInterestCharges(grossincome)ofnotlessthan1.5timesthesumoftheannualizedinterestrequirementsonindebtednesstobeoutstandingandthedividendrequirementsonPreferredStocktobeoutstanding.EffectiveJanuary1,1977,theFederalPowerCommission,nowtheFederalEnergyRegulatoryCommission(FERC),revisedtheaccountingtreatmentfortheAllowance.SeeNote(e)tothe"STATEMENTOFINCOME."ThechangeinthemethodofrecordingtheAllowancemayhavetheeffectofreducingtoanextentnotnowdeterminedtheamountofPreferredStockwhichtheCompanycanissuebut,basedontheCompany'searningsforthetwelvemonthsendedSeptember30,1977andaftergivingeffecttothesaleof$50millionofSeriesPreferredStockinOctober1977andthesaleoftheBonds(8th/0interestrateassumed),themethodofrecordingtheAllowancewouldnotlimittheamountofPreferredStockwhichtheCompanyplanstoissueduring1978.TherearenocharterprovisionslimitingtheissuanceofPreferenceStock. RATEMATTERSSalestoultimatecustomers,whichareregulatedbythePUC,accountedforapproximately98'/ooftheCompany'srevenuesfromelectricsalesoverthepastfiveyears.Theremaining2/oofrevenuesfromelectricsales,representedbysalestoothersforresale,areregulatedbyFERCasareinterchangepowersales,whichareclassifiedasacredittooperatingexpenses.TheCompany'sPUCandFERCtariffsincludefueladjustmentclauses.See,however,thediscussionoftheCompany'sOneidamineunder"BUSINESS-FuelSupply(Coal)"concerningthelimitedrecoveryofthecostofcoalminedatOneida.PUCtariffsalsoincludeataxsurchargetorecoverthecostofincreasedPennsylvaniataxes.Since1971theCompanyhasrequestedandthePUChasgrantedthefollowinggeneralincreasesinbaseratechargesforelectricserviceexpressedaspercentagesofannualizedrevenueslnthetestyearusedforthefinalPUCorderineachproceeding.Annualizedrevenuesconsistofrevenuesderivedfrombaserates,fueladjustmentclausesandthetaxsurcharge.IncreaseGrantedRequestFiledMarch1971o/oIncreaseRequested15.2TestYear(TwelveMonthsEnded)Increase'ffectiveDecember31,1970May1971March19724-Millions4/e$12.14.417.16.2$29.210.6April197311.4April30,1973June1973January1974$9.42.619.15.2$28.57.8March197514.6July31,1975September1975$21.03.9April197620.03.7August197637.37.0$78.314.6AcomplainantintheCompany'sMarch1975rateproceedingappealedtheAugust1976decisionofthePUCgrantingthe14.6/0increaserequestedbytheCompany.Thisappeal,whichwasdeniedbytheCommonwealthCourtofPennsylvania,raisedobjectionsregarding,amongotherthings,theexistenceandamountofdifferencesinratesbetweencertainoftheclassesofservicesprovidedbytheCompany.ThisappealdidnotquestionthePUC'sAugust1976decisionwithrespecttomeasuresofvalue,levelofrevenuesorrateofreturn.ThecomplainanthasfiledapetitionwiththeSupremeCourtofPennsylvaniarequestingareviewoftheactiontakenbytheCommonwealthCourt.Arateincreaseaggregatingapproximately$1millionannuallyfortheCompany'sfifteenresalecustomerswaspermittedbyFERCtobecomeeffective,subjecttorefund,inNovember1976.CertainoftheaffectedcustomerswhowereopposingtheincreasehaveenteredintoasettlementagreementwiththeCompany.ArequestforapprovalofthisagreementispresentlypendingbeforeFERC. InaproceedingaffectingallPennsylvaniaelectricutilities,thePUCinMay1975institutedaninvestigationintofueladjustmentclauses.AtthecommencementofthisinvestigationthePUCproposedforconsideration,amongotherthings,(1)alimitationontherecoveryofincreasedfuelcoststolessthan100'lo,(2)theinclusionofnuclearfuelcostsintheformula,(3)arevisioninthemethodofcalculatingthefuelcostsastheyrelatetointerchangepowerpurchasesandsalesand(4)theuseofa12-monthperiodfordeterminingthecurrentcostoffuel.InaseparateproceedingaffectingalllargePennsylvaniaelectricutilities,thePUCinOctober1977announcedthatalthoughitwasnot"atthispointopeningaformalproposedrulemakingproceeding",ithasbegunconsiderationofaproposaltoreplacefueladjustmentclauseswithalevelizedenergycostrate.UnderthePUC'sproposal,eachutility'senergycostratewouldincludeall(1)fossilfuelcosts,(2)purchasedpowerenergycosts,(3)netinterchangeenergysalesandpurchasesand(4)nuclearfuelcosts.Autility'senergycostratewouldbesetprospectively,utilizingadjustedhistoricaldata,andisintendedtoremainstableoveratwelvemonthperiodapprovedbythePUC.Intheeventofunusualcircumstancesduringatwelvemonthperiod,autilitywouldhaveanopportunitytopetitionthePUCtoreviseitsenergycostrate.Theproposalcontemplatesthatiftheenergycostsactuallyincurredexceedcostsspecifiedintheutility'senergycostrate,thefullamountofexcesscostsmaynotberecoverablebytheutility.Intheeventofanover-recoveryofenergycosts,theutilitywouldberequiredtorefundaportionoftheexcesstocustomers.TheproposalstatesthataccumulateddeferredfuelcostsunderthepresentfueladjustmentclauseswouldberecoverableoveraperiodprescribedbythePUC.TheCompanyisunabletopredicttheultimateresultsofeitheroftheseproceedings.AmendmentstothePennsylvaniaPublicUtilityLaw,generallyeffectiveinOctober1977,havealteredthePUC'srate-makingprocedures.Amongotherthings,theamendmentsshortentheperiodduringwhichthePUCmustactonafilingofageneralrateincieasefromelevenmonthstoninemonths.Interimratereliefduringthependencyofageneralrateincreaserequestwillnotbepermittedexceptunderconditionsoffinancialemergency.Thenewprovisionspermittheuseoffutureprojectedratherthanhistoricaltestyearsasthebasisforrateincreases.TheamendmentsalsoprescribecertainchangesinPUCproceduresforvotingonrateincreaseapplications,andcreatetheofficeofAdministrativeLawJudgetoconducthearingsandsubmitrecommendationstothePUC. STATEMENTOFINCOMEThefollowingStatementofIncomeforthefiveyearsendedDecember31,1976hasbeenexaminedbyHaskins8Sells,independentCertifiedPublicAccountants,whoseopinionappearselsewhereinthisProspectus.TheStatementforthetwelvemonthsendedSeptember30,1977hasnotbeenauditedbutintheopinionof.theCompanyincludesalladjustments(whichcompriseonlynormalrecurringaccrualsexceptforthewrite-offofcertaindevelopmentcostsbyoneoftheCompany'ssubsidiariesdescribedinnote(c))necessaryforafairpresentationoftheresultsofoperationsforthatperiod.TheStatementshouldbe'onsideredinconjunctionwithitsnotesandtheotherfinancialstatementsandrelatednotesappearingelsewhereinthisProspectus.OperatingRevenues(99/0Electric)(a)..........................OperatingExpensesCostofenergyFuel(bxc).Powerpurchases.Interchangepowersales................................Netcostofenergy..................................Otheroperation...............'...................................Maintenance..Deprechtlon..tncometaxes(d)..~Taxes,otherthanincome(d).................................Totaloperatingexpenses.......................OperatingIncome.OtherIncomeandDeductionsAllowanceforfundsusedduringconstruction(e)Allfunds(priortoJanuary1,1977)................Equityfunds(sinceJanuary1,1977).............Incometaxcredits(d)(e)..Other-net(c).Totalotherincomeanddeductions........IncomeBeforeInterestCharges...................................InterestChargesLong-termdebtShort-termdebtandother....................................Allowanceforborrowedfundsusedduringcon-struction(sinceJanuary1~1977)(e)...................NetInterestcharges...............................IncomeBeforeNonrecurringCredit.............................NonrecurringCreditRelatedtoAccountingChange,NetofIncomeTaxes($4,831)(b)..............................NetIncome-BeforeDividendsonPreferredandPreferenceStockDividendsonPreferredandPreferenceStock..............EarningsAppllcab'letoCommonStock........................EarningsPerShareofCommonStockBeforeNonrecurringCredit...................................NonrecurringCredit(b).EarningsPerShareofCommonStock...........AverageNumberofCommonSharesOutstanding(Thousands).DividendsDeclaredPerShareofCommonStock........RatioofEarningstoFixedCharges(h)Actual.............ProForma..SupplementalRatioofEarningstoFixedCharges(h)Actual..ProForma1972$345,79212MonthsEndedSept.30,19771978(Unaudited)$644,147$735,27795,220,13,514(34,569)74,16561,63333,09941,44626,08625,658262,08783,705125.57715,299(70,175)70,70169,00733,64848,83733,94330,005286,14198,673192,35324,176(108,723)107,80680,56541,29852,39939,21135.571356,850115,186271,63637,698(172,823)136,51192,18647,95658,54047,29840,669423,160120,969321,78329,657(160,163)191,277103,75854,94662,47843,82849,526505,813138,334412,94043,220(279,618)176,542109,38259,07466,39085,34557,974554,707180,57014,647334'305)14,67698.38136,5073,95340.46057,92157,92114,526$43.39514,967911,30016,358.115,031'3,2034,91648,11966,91266,91217,191$49,72120,7325,0763,418'29,226144,41251,1499,94661,09583,3174,16287,47919,656$67,82336,60511,2013,15450,960171,92967,9326,45674,38897,54197,54124,509$73,03245,19214,4571,38161,030199,36479,7837,47087,253112,111112,11133,368$78,74313,83916,40414,579(4,443)40,379220,94988,671(f)6,138(19,675)75,134145,815145,81536,286(g)$109,529$2.48$2.57$2.48$2.57$2.880.19$3.07$2.87$2.68$3.37$2.87$2.68$3.3717,513$1.642.8919,359$1.682.8922,067$1.772.8825,459$1.802.6529,367$1.802.5332,504$1.863.192.862.742.702.652.442.252.792.54YearEndedDecember31,197319741975ThousandsofDollars$384,814$472,036$544,12910 (a)Referenceismadeto"RATEMATTERS"foradditionalinformationconcerningfueladjustmentclauses,aPennsylvaniaPublicUtilityCommission(PUC)orderproposingtoreplacethefueladjustmentclausewithalevelizedenergycostrateandasummaryoftheCompany'srateproceedings.(b)EffectiveJanuary1,1974,theCompany,asauthorizedbythePUC,changeditsmethodofaccountingforfuelcoststoachievematchingoffuelexpenseandrevenuesbyaccountingperiods.Thischangeresultedinthechargetoincomeforfuelcostsrecoverableinthefuturebeingdeferredtotheperiodsinwhichthesecostsarebilledtocustomersthroughapplicationoffueladjustmentclauses.For1974,fuelcostswerelowerbyanetamountof$26.6millionand,afterincometaxeffects,EarningsApplicabletoCommonStockwereincreasedby$12.6million($0.57pershare)asaresultofthisaccountingchange.TheNonrecurringCreditshownontheStatementofIncomerepresentsthecumulativeeffecttoDecember31,1973ofthechangeinaccountingforfuelcosts,netofrelatedincometaxes.Inthefollowingsummary,earnings"AsReported"includestheNonrecurringCreditrecordedin1974,andearnings"Restated"reflectstheeffectofretroactiveapplicationofthechangeinaccountingforfuelcostsandrelatedincometaxeffectshadthenewmethodbeenusedsincetheprincipalfueladjustmentclausebecameeffective:197219791974EarningsApplicabletoCommonStock(thousandsofdollars)AsReported.Restated..EarningsPerShareofCommonStock($)AsReported.Restated.$43,39543,161$2.482.46$49,72151,066$67,82363,661$2.57$3.072.64'.88(P)Basedonaveragenumberofsharesoutstanding.(c)Referenceismadeto"BUSINESS-FuelSupply(Coal)"forinformationconcerningoperationsofoneoftheCompany'ssubsidiaries,TheOneidaMiningCompany(Oneida),relatedto(1)thewrite-offofcertaindevelopmentcostsreflectedinOtherincome-netandthepricingofcoalproducedbyOneidaforfueladjustmentclausepurposesreflectedinfuelcosts;whichreducedtheCompany'snetincomebyapproximately$6.6millionand$3.6million,respectively,forthetwelvemonthsendedSeptember30,1977and(2)thepossibilityoffuturelossesifpresentminingplansprovenottobeeconomicallyfeasible.,(d)ReferenceismadetoNote10toFinancialStatementsforinformationrelatingtotaxes.(e)Inaccordancewithapplicableregulatoryaccountingprocedures,thecostoffundsusedtofinanceconstructionworkinprogressiscapitalizedaspartofconstructioncostandwhentheconstructionworkisplacedinservice,theCompanyispermittedtoincludeinrateschargedforutilityserviceareturnon,anddepreciationof,thecostoffundssocapitalized.ThecomponentsofAllowanceforfundsusedduringconstruction(Allowance)shownontheStatementofIncomearenon-cashitemsequaltothecostoffundscapitalizedduringtheperiodandservetooffsetontheStatementofIncometheeffectofthecostoffinancingconstructionworkinprogress.SinceFebruary1,1974,inaccordancewithproceduresprescribedbythePUC,theAllowanceratehasbeencomputedonanafter-taxbasisandincometaxreductionsassociatedwiththeinterest(borrowedfunds)componentoftheAllowancehavebeenreflectedinIncometaxcreditsunderOther11 I4 IncomeandDeductionswithacorrespondingincreaseintheprovisionforincometaxeschargedtoOperatingExpenses.DuringtheperiodFebruary1,1974throughDecember31,1976,theAllowanceratewascomputedsemi-annuallyusingaspecifiedrateforcommonequityandthecostoffixedratesecuritiesissuedinthetwelvemonthsprecedingthesemi-annualcomputation.EffectiveasofJanuary1,1977,theCompanyhasusedarateof7.4/owhichwascomputedinaccordancewitha1977FederalEnergyRegulatoryCommission(FERC)orderwhich(1)providesaformulafordeterminingthemaximumAllowancerate,(2)providesforsemi-annualcompoundingand(3)providesforsegregatingtheAllowanceintotwocomponents,borrowedfundsandother(equity)funds.ThegrossborrowedfundscomponentrecordedsinceJanuary1,1977isincludedasacreditintheInterestChargessectionoftheStatementofIncomeandtheremainderofthetotalAllowancerecordedisshownunderOtherIncomeandDeductionsasEquityfunds.TheCompanyhasnotreclassifiedtheAllowanceintoborrowedfundsandequityfundscomponentspriortoJanuary1,1977sincetheallocationwouldnotbecomparabletothatrequiredundertheFERCformula.PriortoJanuary1,1977,themethoduseddidnotprovidefordirectcompoundingandtheCompanycomputedtheAllowancebyapplyingtheratetoaconstructionworkinprogressbasewhichdidnotincludetheaccumulatedAllowancewhichhadpreviouslybeenrecorded.However,anequivalentratecanbecalculatedfortheperiod1972-1976byrelatingtheamountofAllowancerecordedduringtheperiodtothebalancesoftheconstructionworkinprogressincludingtherelatedaccumulatedAllowance.TheCompany'sAllowancerateandtheequivalentratefortheperiod1972-1976areasfollows:Allowance.EquivalentRateRateJanuary1,1972-December31,1972....8.0/o7.4/oJanuary1,1973-January31,1974.......8.57.9February1,1974-June30,1974...........7.57.0July1,1974-December31,1974..........8.07.3January1,1975-December31,1975....9.258.3January1,1976-December31,1976....8.757.9BasedontheassumptionthatfundsrequiredforconstructionfinancingwereprovidedsubstantiallyinthesameproportionastheCompany'saveragecapitalizationratiosoverthefive-yearperiodendedDecember31,1976(51/odebt,18/opreferredandpreferencestockand31'/0commonstockequity)andusinganafter-taxcostofdebtsinceFebruary1,1974,theportionoftheAllowanceattributabletofundsprovidedbycommonequityasapercentageofEarningsApplicabletoCommonStockfortheyears1972-1976wouldbeapproximatelyasfollows:197210/01973.i..111974.161975.211976.27Basedonthesesameassumptions,theCompanyestimatesthatthecommonequitycomponentoftheAllowancerecordedintheperiodOctober-December1976wouldbeapproximately25/oofthe$26.1millionEarningsApplicabletoCommonStockforthesameperiod.12 ~JE TheCompanyunderstandsthatanissuehasbeenraisedinlitigationtowhichitisnotapartyrelating'otheAllowanceasreportedbyanotherpublicutility.Inthislitigation,itisallegedthatactualearningswerenotproperlypresentedinthattheAllowancewasincludedas"OtherIncome"withoutanadequateexplanationofthisItem,andthattheAllowanceisnotinfactincomeasgenerallyunderstood,butratheraprojectionoffutureearningsnotreflecting.anyactualyieldonassetsoranyrevenueduringanyfiscalperiodandnotinfactearneduponcompletionof'construction.TheAllowance,whichisnotanitemofcurrentcashincome,isincludedinthefinancialstatementsoftheCompanyinaccordancewiththeapplicableregulatorysystemofaccountsandinaccordancewithgenerallyacceptedaccountingprinciples.TheCompanyisunabletopredicttheoutcomeofthislitigationoritseffect,ifany,upontheCompany.(f)Theannualinterestrequirementsonlong-termdebtoutstandingatSeptember30,1977,includingtheamountduewithinoneyear,are$90,975,000andontheBondswillbe$(g)TheannualdividendrequirementsonPreferredandPreferenceStockoutstandingatSeptember30,1977are$20,323,000and$19,870,000,respectively,includingtheannualdividendrequirementson500,000sharesof8%SeriesPreferredStockissuedonOctober19,1977.(h)"Earnings"usedtocomputethisratioconsistofnetincome(1974includes$4,162,000nonrecurringcredit),excludingtheundistributedincomeorlossofunconsolidatedsubsidiariesandotherassociatedcompanies,pIusfixedchargesandincometaxes(includingdeferredincometaxesandinvestmenttaxcredits-net)."FixedCharges"consistofinterestcharges(excludingtheallowanceforborrowedfunds)andtheestimatedinterestcomponentofmajorleaserentaisandone-thirdofailotherrents.TheproformaratioofearningstofixedchargesforthetwelvemonthsendedSeptember30,1977reflectsearningsasdefinedaboveand(1)annualinterestchargesonthelong-termdebtoutstandingasofSeptember30,1977andtheBonds(8V~%interestrateassumedfortheBonds),(2)annualinterestchargeson$95millionofaverageshort-termdebt(commercialpaperatanassumedrateof67~%)assumedtobeoutstandingduringthetwelvemonthsendedSeptember30,1978,basedontheaverageshort-termdebtoutstandingduringthetwelvemonthsendedSeptember30,1977(excludingshort-termdebtincurredonJuly1,1977toretire$20millionofbonds,andtoberepaidfromthesaleoftheBonds),and(3)theinterestcomponentofrentalsforthetwelvemonthsendedSeptember30,1977.Achangeof.10%intheinterestrateoftheBondswouldresultinachangeofapproximately.003intheproformaratio.Thesupplementalratiosofearningstofixedchargesinclude,inadditiontotheitemsdefinedabove,theapplicableundistributedincomeorlossandfixedchargesofunconsolidatedsubsidiariesandotherassociatedcompanies.Excludingthe$4,162,000nonrecurringcreditfromincome,the1974ratiowouldbe2.75andthesupplementalratiowouldbe2.53.13 MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOMETheStatementofIncomereflectstheresultsofpastoperationsandisnotIntendedasanyrepresentationastotheresultsofoperationsforanyfutureperiod.Futureoperatingresultswillnecessarilybeaffectedbyvariousanddiversefactorsanddevelopments,includingtheobtainingofadequateandtimelyrateincreases,businessactivity,customerdemand,energyconservation,Inter-changepowersales,taxes,laborcontracts,fuelcosts,availabilityofcapital,governmentalactions,environmentalexpendituresandothermatters.TheCompanyisunabletopredictthecombinedeffectoftheabovefactorsonitsfutureoperatingresults.TheCompany'searningsimprovementforthetwelvemonthsendedSeptember30,1977wasdueprincipallytosharplyincreasedelectricsalesathigherpricestointerconnectedutilitiesandtoincreasedelectricsalesathigherratestocustomers,asmorefullydiscussedbelow.ThefollowinganalysisoftheCompany'sfinancialperformanceexplainsthereasonsforchangesinspecificitemsontheStatementofIncomecomparingtheyears1975to1974,1976to1975andthe.twelvemonthsendedSeptember30,1977totheyear1976.EnergySalesandOperatingRevenuesThechangeinoperatingrevenuesfromthepriorperiodisattributabletothefollowing:Increase(Decrease)19751978INllllonsofDollars1977(a)ElectricrevenuesQuantityofsalesto:Ultimatecustomers................Othersforresale....................Rateincreases.Fueladjustmentclauses...............Other(includingtaxsurcharge).....Steamrevenues..Total..$12.8$19.3$17.5(6.0)0.30.27.440.436.255.333.829.11.67.38.171.1101.191.11.0(1.1)$72.1$100.0$91.1(a)TwelvemonthsendedSeptember30.TheCompany'stotalelectricenergysalesincreasedlessthan1/oin1975,principallyreflectingtheeconomicrecession,energyconservationandtheexpirationofcontractsalestoaneighboringutility.Energysalesincreased6.5'/oin1976reflectinganimprovementintheeconomyandindustrialactivityintheCompany'sservicearea.ForthetwelvemonthsendedSeptember30,1977,energysalesincreased4.4/oover1976,whichwaspartiallyattributabletothemoreextremeweatherconditionsinthefirstninemonthsof1977comparedtothemilderthannormalweatherexperiencedinthesameperiodduring1976.RateincreasesaffectingultimatecustomersbecameeffectiveinJanuary1974($19.1millionannually),September1975($21.0millionannually),April1976($20.0millionannually)andAugust1976,($37.3millionannually).14 IIFP TheCompany'stariffsincludefueladjustmentclauseswhichadjustpricesforelectricserviceforvariationsinthecostoffuelusedtogenerateelectricity.See,however,thediscussionoftheCompany'sOneidamineunder"BUSINESS-FuelSupply(Coal)"concerningthelimitedrecoveryofincreasesinthecostofcoalminedatOneida.Revenuesfromthefueladjustmentclausestotaled$134.5millionin1975,$168.3millionin1976and$197.4millionforthetwelvemonthsendedSeptember30,1977,reflectingtheincreasedleveloffuelcostsandadditionalenergysales.Referenceismadeto"RATEMATTERS"forinformationconcerninggeneralrateincreasesgrantedtheCompanyandaPennsylvaniaPublicUtilityCommission(PUC)orderproposingtoreplacethefueladjustmentclausewithalevelizedenergycostrate.CostofEnergyThenetcostofenergyincludesfuelexpensepluspowerpurchaseslesspowersoldtootherutilities.IncludedinpowerpurchasesisthevalueofelectricitygeneratedduringthetestperiodoftheCompany'snewgeneratingunits.Fuel.FuelexpenseasshownontheStatementofIncomeincludesthefollowing:19741975197B1977(a)MillionsofDollarsCostoffuelconsumedElectric.$215.2Steamheat.3.8Totalcostoffuelconsumed...................219.0Lessincreaseinfuelcostsdeferredtomatchrevenuesfromfueladjustmentclauses..............26.6Totalfuelexpense.$192.4$269.2$323.1$414.84.03.23.2273.2326.3418.01.64.55.1$271.6$321.8$412.9(a)TwelvemonthsendedSeptember30.Thechangefromthepriorperiodinthetotalcostoffuelconsumed,shownintheprecedingschedule,isattributabletothefollowing:Increase(Decrease)197519751977(a)MillionsofDollarsElectricQuantityofelectricitygenerated.....Averagecostoffuelsburned..........Steamheat.Total.$13.3$17.9$44.540.736.047.254.053.991.70.2(0.8)$54.2$53.1$91.7(a)TwelvemonthsendedSeptember30.Thecostoffuelconsumedincreasedduringtheperiodscomparedasaresultofgreatergenerationofenergyandincreasesinthecostoffuelspurchased.Thequantityofenergygeneratedduring1975increasedduetogreateravailabilityofcoal-firedgeneratingunitsandtheMartinsCreekNo.3oil-firedgeneratingunitwhichbegancommercialoperationinOctober1975.Increasedgenerationduring197615
resultedprimarilyfromafullyear'soperationoftheMartinsCreekNo.3unit.InMarch1977,theMartinsCreekNo.4oil-firedunitbegancommericaloperationprovidingadditionalgeneratingcapability.See"ELECTRICSTATISTICS"forthedetailofgenerationbyfuelsource.Theaveragecostoffuelsconsumedincreasedduring1975,1976andthetwelvemonthsendedSeptember30,1977duetothecombinedeffectsofhighercoalpricesandthecostofoilconsumedattheMartinsCreekUnitswhichhaveacostper,kwhgeneratedapproximatelytwicethatoftheCompany'scoal-firedunits.Theaveragecostoffuelconsumedperkwhgeneratedwas0.88centsin1974,1.04centsin1975,1.17centsin1976and1.32centsinthetwelvemonthsendedSeptember30,1977.Theportionofthecostoffuelconsumedwhichisrecoverablethroughfueladjustmentclausesisdeferredtotheperiodinwhichsuchcostsarebilledtocustomers.InterchangePowerSa/es.ThetotalelectricenergyavailableforsaleincludesenergygeneratedbytheCompany'splantsandpowerpurchasedfromothers,afterdeductingCompanyusesandlinelosses.During1975,1976andthetwelvemonthsendedSeptember30,1977,approximately31/0,29/oand35/o,respectively,ofthetotalelectricenergyavailablewassoldtootherutilitiesunderinterconnectionarrangements.AsrequiredbyboththePUCandFERC,suchsalesarenotrecordedasOperatingRevenuesbutarecreditedtoOperatingExpensesontheStatementofIncome.Thechangeininterchangepowersalesfromthepriorperiodisattributabletothefollowing:Increase(Decrease)197519761977(a)MillionsofDollarsQuantityofenergysold.$47.2$(7.9)$61.1Averagepriceofenergysold.18.4(5.7)55.9Other(1.5)0.92.5Total.$64.1$(12.7)$119.5(a)TwelvemonthsendedSeptember30.Thequantityofinterchangepowersoldincreasedduring.1975duetogreateravailabilityofgeneratingunits,theadditionofMartinsCreekUnitNo.3,theabsenceofcontractualsalestoaneighboringutilityandtheCompany'srelativelyfavorablegeneratingcostscomparedtothoseofotherinterconnectedcompanies.During1976,increasedsalestocustomersreducedthequantityofpoweravailableataneconomicpriceforsaletointerconnectedcompanies.TheadditionofMartinsCreekUnitNo.4,extremeweatherconditionsandextendedoutagesofm'ajorgeneratingunitsofotherinter-connectedutilitiesresultedinsharplyincreasedinterchangesalesduringthetwelvemonthsendedSeptember30,1977.During1976therewasanarrowingofthedifferentialbetweentheCompany'scostofgeneratingelectricityandthepricereceivedforpowersoldontheinterchange,whichpricereflectsasplittingofthedifferencebetweenthebuyer'sandtheseller'scostsofgeneration.TheaveragepricetheCompanyreceivedperkwhofinterchangepowersaleswas1.76centsln1974,1.97centsin1975,1.90centsin1976and2.39centsinthetwelvemonthsendedSeptember30,1977.TheseamountsweresubstantiallyinexcessoftheCompany'saveragefuelcosts.OtherOperationandMaintenanceExpensesTheincreasesinotheroperationandmaintenanceexpensessuchaswagesandbenefits,materialsandsupplies,rentsandinsuranceprincipallyreflecttheeffectsofinflationandthecostsofoperationandmaintenanceofnewfacilitiesplacedinservice.16 DepreciationIncreaseddepreciationexpenseisduetonewfacilitiesplacedinservice,includingMartinsCreekUnitsNos.3and4whichbegancommercialoperationin1975and1977,respectively.ForinformationconcerningareductionintheCompany'scompositedepreciationrateasofJanuary1,1976,seeNote5toFinancialStatements.TaxesForananalysisoftaxesseeNote10toFinancialStatements.AllowanceforFundsUsedDuringConstructionTheAllowanceforfundsusedduringconstructionhasincreasedsubstantiallyduringtheyearsbeingcomparedasaresultoftheCompany'sextensiveconstructionprogramandtherelatedcarryingcostsofsecuritiesissuedtofinancetheconstructionexpenditures.ForadditionalinformationconcerningtheAllowance,seeNote(e)tothe"STATEMENTOFINCOME".OtherIncome-NetThereductioninOtherincome-netduringthetwelvemonthsendedSeptember30,1977reflectsa$6.6million(netofincometaxes)lossofasubsidiary,TheOneidaMiningCompany.Foradditionalinformationsee"BUSINESS-FuelSupply(Coal)".CostofFixedIncomeSecuritiesThechangesfromthepriorperiodininterestchargesondebtandindividendsonPreferredandPreferenceStockwere:Increase(Decrease)1979197B1977(a)MillionsofDollarsInterestChargesLong-termdebt.Short-termdebt.Other.DividendsonPreferredandPreferenceStock$16.8$11.9$8.9(3.3)0.9(1.7)(0.2)0.10.44.98.92.9(a)TwelvemonthsendedSeptember30.Theincreasesinlong-termdebtinterestchargesanddividendsonPreferredandPreferenceStockwereduetoissuanceofsecuritiesprincipallytofinancetheCompany'sconstructionprogramandtherefinancingofmaturingdebtwithsecuritiesbearinghigherinterestrates.DuringtheperiodJanuary1,1975throughSeptember30,1977,outstandinglong-termdebtincreasedby$247millionandPreferredandPreferenceStockincreasedby$141miilion.interestonbankloansandcommercialpapernotesvariesfromyeartoyearduetotheamountofshort-termdebtoutstandingandtheinterestratesineffect.Foradditionalinformationonshort-termdebtseeNote4toFinancialStatements.17 CAPITALSTRUCTUREThecapitalstructureoftheCompanyatSeptember30,1977andasadjustedasofthatdatetogiveeffectto(1)$2,528,000ofCommonStockissuedonOctober14,1977inaccordancewiththeCompany'sEmployeeStockOwnershipPlan,(2)thesateof$50,000,000of8%SeriesPreferredStockonOctober19,1977and(3)thesaleoftheBonds,isasfollows(thousandsofdollars):ActualAmount%ofTotalAsAdjustedAmount,%ofTotalLong-TermDebt(a)FirstMortgageBonds2/4%-10'/a%outstanding.........".............Bondstobeoutstanding........................NotesUnamortizedDiscountandPremium-Net....Totallong-termdebt........................ShareownersInvestment(c)PreferredandSeriesPreferredStock(3.35%-9.24%)....PreferenceStock{$8.00-$13.00)..................Totalpreferredandpreferencestock~~~oor~~ooor~oro~~oo~or~oo~~~~~~CommonStock.CapitalStockExpense.EarningsReinvested.....Totalcommonequity.......................Totalshareownersinvestment.........$1,145,00020,430(3,898)1,'I61,532231,375206,000437,375575,458(10,428)274,358839,3881,276,7639.58.534.4281,37510.9206,0007.9487,375577,986(d)(10,675)(e)274,358841,6691,329,04432.5$1,145,000100,00020,430(3,898)(b)1,261,532'8.7Totalcapitalization...$2,438,295100.0$2,590,576100.0(a)SeeNotes4and8toFinancialStatementsfordetailsconcerningshort-termandlong-termdebt.Long-termdebtatSeptember30,1977includes$3,676,000duewithinoneyearclassifiedasacurrentliabilityontheBalanceSheet.AtNovember10,1977therewerenobankloansoutstandingand$86.6millionofcommercialpapernotesoutstandingataweightedaveragediscountrateof6.5%.SeeNotes12and15toFinancialStatementsforinformationconcerningleasesandcommitmentsandcontingentliabilities.(b)BasedonassumedproceedstotheCompanyof100%oftheprincipalamountoftheBonds.{c)SeeNote6toFinancialStatementsfordetailsconcerningcapitalstock.(d)TheadjustedamountdoesnotincludeproceedsreceivedsubsequenttoSeptember30,1977forCommonStocksoldundertheCompany'sdividendreinvestmentplan.(e)Afteraddingestimatedissuanceexpensesandplacementfeesapplicableto8%SeriesPreferredStocksoldonOctober19,1977.18 k BUSINESSRevenues.DuringthetwelvemonthsendedSeptember30,1977,about40/0ofelectricoperatingrevenuescamefromresidentialcustomers,28/0fromindustrialcustomers,27%fromcommercialcustomersand5/0fromothers.DuringthetwelvemonthsendedSeptember30,1977,theCompany'slargestcustomerprovidedabout4.7/0ofelectricoperatingrevenuesandthe26largestindustrialcustomers(eachofwhosebillingsexceeded$1million)providedabout11.7%%dofsuchrevenues.Industrialcustomersarebroadlydistributedamongindustrialclassifications.PowerSupply.DuringthetwelvemonthsendedSeptember30,1977,theCompanyproduced32.5billionkwhinplantsownedbytheCompanyandpurchased0.5billionkwhunderafirmpurchaseagreement.DuringthisperiodtheCompanydelivered11.6billionkwhandreceived1.6billionkwhaspowerpoolinterchange.TheCompany'sMartinsCreekoil-firedUnitNo.4(820,000netkilowattcapability)wasplacedinserviceinMarch1977.TheCompany'spowercapability(winterrating)atSeptember30,1977wasasfollows:Coal-FiredMontourBrunnerIsland.Sunbury.MartinsCreek..Keystone..Conemaugh..Holtwood.PlantNetKilowattCapability1,515,0001,454,000390,000,300,000210,000(1)194,000(2)73,000TotalCoal-Fired..Oil-FiredMartinsCreek..CombustionTurbinesandDlesels.Hydro.TotalGeneratingCapability.....FirmPurchases-HydroTotalCapability..4,136,0001,640,000539,000146,0006,461,00076,000(3)6,537,000(1)Company's12.34/0undividedinterest.(2)Company's11.39/0undividedinterest.(3)FromSafeHarborWaterPowerCorporation.See"BUSINESS-HydroelectricProjects".Approximately37/0oftheCompany'sgeneratingcapabilityatSeptember30,1977hasbeenplacedinserviceinthelastfiveyearsand69/ointhelasttenyears.Thecapabilityofgeneratingunitsisbasedupontheoperatingexperienceandphysicalconditionoftheunitsandmayberevisedfromtimetotimetoreflectchangedcircumstances.19
Themaximumone-hourdemandontheCompany'ssystemwas4,425,000kw,whichoccurredonJanuary17,1977.TheCompanyestimatesthatitwouldhaveexperiencedamaximumone-hourdemandof4,514,000kwonthatdateifa5/0voltagereductionhadnotbeenineffecttopermitthePennsylvania-NewJersey-MarylandInterconnectiontosupplyemergencypowertootherpowerpools.Themaximumone-hoursummerdemandwas3,545,000kw,whichoccurredonAugust29,1977.For"informationconcerninginterchangepowersales,see"MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME"and"ELECTRICSTATISTICS".FuelSupply.DuringthetwelvemonthsendedSeptember30,1977,81/0oftheCompany'senergygenerationcamefromcoal-firedstations,17/ofromoil-firedstationsand2/0fromhydroelectricstations.Coal.ThefollowingtabulationshowstheamountofanthraciteandbituminouscoalburnedbytheCompany'sgeneratingstationsduringthetwelvemonthsendedSeptember30,1977,andtheestimatedrequirementsforcoalovertheremainderoftheexpectedusefullivesoftheCompany'sgeneratingstations.TypeofFuelAnthracite(includingpetroleumcoke).....BituminousCoal(1)Total.BurnedDuringTlNelveMonthsEstimatedEndedRequirementsSeptemberOverPlant30,1977LivesMillionsofTons1.220.010.0225.011.2245.0(1)IncludestheCompany'sshareofthebituminouscoalforthejointly-ownedKeystoneandConemaughgeneratingstations.See"BUSINESS-PowerSupply".TheCompany'spolicygenerallyistomaintaina45to60daycoalsupplyatitsgeneratingstations.SincelaborcontractsbetweenmineownersandtheUnitedMineWorkersofAmericaexpireonDecember6,1977,theCompany,inanticipationof,possiblestrikes,isattemptingtoincreaseitscoalinventoryovernormallevels.AtSeptember30,1977,basedonestimatedusage,theCompany'scoalinventorywassufficientforabout68daysofoperations.DuringthetwelvemonthsendedSeptember30,1977,39/0oftheCompany'scoalsupplywasobtainedfromsubsidiaryminingcompanies(approximatelyone-third-ofwhichwaspurchasedbythosecompaniesintheopenmarket),10%underlong-termcontractsand51/0byshort-termcontractsandopenmarketpurchases.AtSeptember30,1977,theCompany'sinventoryofanthracitewasabout2.1milliontons.ThebalanceoftheCompany'srequirementsforanthracite,aswellasitsrequirementsforpetroleumcoke,overtheremainderoftheexpectedusefullivesoftheCompany'santhracite-firedgeneratingstationsisexpectedtobeobtainedbyshort-termcontractsandopenmarketpurchases.ThefollowingtabulationliststhebituminouscoalreservesownedorcontrolledatSeptember30,1977bytheCompany'ssubsidiary,PennsylvaniaMinesCorporation.Thesereserves,allofwhicharelocatedinPennsylvania,arerecoverablebydeepminingoperations.Theinformationundertheheadings"EstimatedRecoverableReservesasofJanuary1,1976"and"Average/0Sulfur(ByWeight)"was20 providedbyPaulWeirCompanyIncorporatedonthebasisofitsindependentstudiesandtheCompanyhasincludedsuchinformationhereininrelianceuponsuchstudies.TheCompanyhasnotretainedanyotherindependentorganizationtoreviewandreportonitsbituminouscoalreserves.EstimatedRecoverableReserves1977AverageasofProduction'/oJanuary1,1976ThroughSulfur(By1976(1)ProductionSeptember30Weight)(4)ThousandsofTonsAssignedReserves(2)Greenwich.Oneida.Rushton.Tunnelton.TotalAssignedReserves.......UnassignedReserves(3)GreeneHill,GreeneManor..............................TotalUnassignedReserves...Total...........................~..66,64921,6387,69410,187106,168159,877162,682322,559428,7271,5852655564032,8092,8091,3821733863052,2462,2462.73.34.51.72.93.3(1)Includesonlyprovenreservesforwhichtonnageiscomputedfromdimensionsrevealedinoutcropdata,mineworkingsanddrillholes.(2)Assignedreservesrepresentcoalwhichcanbeminedonthebasisofcurrentminingpracticesandtechniquesthroughtheuseofmineopeningsandplantfacilitiescurrentlyinexistenceorunderconstruction.(3)Unassignedreservesrepresentundevelopedreservesorreservesthatwouldrequiresubstantialadditionalminingfacilitiesbeforeoperationscouldbegin.(4)Rawcoal,drybasis(priortocleaning).Priorto1976theCompanypurchasedaportionofitscoalrequirementsfromTheOneidaMiningCompany(Oneida),asubsidiaryofTheNorthAmericanCoalCorporation(NorthAmerican),underalong-termcostofproductionsalescontract.InMarch1976,inanefforttocontroltheabnormallyhighcostofcoaldeliveredtotheCompanyfromtheOneidamine,theCompanyassertedacontractualrighttotakeoverOneida.LitigationwithNorthAmerican,whichcontestedtheCompany'stake-over,wassettledinFebruary1977ontermswhichgavetheCompanyuncontestedcontroloverOneida.WiththeconclusionofthelitigationtheCompanywasabletoexpandthescopeofstudiespreviouslyundertakentodeterminewhatchangesshouldbemadeinOneida'sminingoperations.InSeptember1977,theCompanyadoptedaninterimplanwhichprovidesforthecontinuationofsteamcoalminingincertainsectionsoftheOneidamineandthewrite-offofaportionofthedevelopmentcostsincurredfrom1970through1974withrespecttoothersectionsoftheOneidaminewhicharebeingabandonedorbypassedbecauseofpoorminingconditions.Thiswrite-off,whichwillnotberecoveredthroughtheapplicationoftheCompany'sfueladjustmentclauses,resultedina$6.6millionreductionoftheCompany'snetincome($.20pershareofCommonStock)forthetwelvemonthsendedSeptember30,1977.21 EffectiveFebruary1,1977theCompanybegan.topriceOneidacoalforfueladjustmentclausecalculationpurposesattheaveragecostpertonofcoalproducedbytheCompany'sotheraffiliatedminesratherthanatOneida'shighercost.ThisactionreducedtheCompany'snetincomebyabout$3.6million($.11pershareofCommonStock)duringtheperiodfromFebruarythroughSeptember30,1977.TheCompanyestimatesthatitsnetincomewillcontinuetobereducedbyabout$400,000permonththroughmid-1978whentheCompanyexpectstodeterminewhethertocontinuetomakeadditionalinvestmentsforfurtherdevelopmentoftheOneidamine.IntheeventthattheCompanydeterminestomaketheseinvestements,itisexpectedthatthedifferencebetweenthecostofOneidacoalandtheaveragecostpertonofcoalproducedbytheCompany'sotheraffiliatedmineswillbecapitalizedratherthanbeingchargedagainsttheCompany'scurrentearnings.However,ifadverseminingconditionspreventthefurtherdevelopmentoftheOneidamine,miningoperationsmaybeterminatedandadditionallossesincurred.AtSeptember30,1977andaftergivingeffecttotheSeptember1977write-off,theaggregatecapitalinvestmentinOneida'sfacilities(includingleaseobligations)amountedtoabout$36million,substantiallyallofwhichwasguaranteeddirectlyorindirectlybytheCompany.TheCompanyhasalong-termcontractwithabituminouscoalsupplier(LadyJane)underwhichthesupplierisobligatedtodeep-mineitsreservestoexhaustion.ProductionattheLadyJanemineamountedto200,000tonsduringthetwelvemonthsendedSeptember30,1977.Run-of-minecoalfromtheLadyJaneminehasanaveragesulfurcontentofabout3.5/o.ThecoalburnedintheCompany'sgeneratingstationscontainsbothorganicandpyriticsulfur.Mechanicalcleaningprocessesinstalledattheminesarebeingutilizedtoreducethepyriticsulfurcontentofthecoal.ThereductionofthepyriticsulfurcontenthasloweredthetotalsulfurcontentofthecoalburnedtolevelswhichpermitcompliancewithcurrentsulfurdioxideemissionregulationsestablishedbythePennsylvaniaDepartmentofEnvironmentalResources(DER).See"BUSINESS-EnvironmentalMatters".TheregulationsapplicabletotheCompany'sgeneratingstationsgenerallylimitthetotalsulfurcontentofcoaltonotmorethan2.5lo.Coalobtainedundershort-termcontractsandbyopenmarketpurchasescurrentlyhasanaveragesulfurcontentofabout2.2'/o.TheCompanyownsa12.34/oundividedinterestintheKeystonestationandan11.39/oundividedinterestintheConemaughstation,bothofwhicharemine-mouthgeneratingstationslocatedinwesternPennsylvania.TheownersoftheKeystonestationhavealong-termcontract,whichmaybeextendedthrough2012,withasupplierfor90/ooftheannualbituminouscoalrequirementsoftheKeystonestation.TheownersoftheConemaughstationhavealong-termcontractwithanothersupplierforatleast80'/ooftheannualbituminouscoalrequirementsoftheConemaughstationforthelifeofthestation.Totheextentthattherequirementsoftheseplantsarenotcoveredbylong-termcontracts,thebituminouscoalrequirementsare,withminorexceptions,obtainedfromlocalsuppliers.TheCompanyexpectsthatassignedreservesandlong-termcontractswillprovide40/oto50/oofitsprojectedbituminouscoalrequirementsduringthenextfiveyears.Thebalanceoftheserequirementswillhavetobeobtainedundershort-termcontractsorbyopenmarketpurchases.Theextenttowhichunassignedreservesmayeventuallybeminedtomeetthefuelrequirementsoffuturegeneratingstationswilldependuponfutureeconomicconditionsandotherfactorswhichcannotnowbepredicted.Excludingmine-mouthplantrequirements,about84/ooftheCompany'sbituminouscoalpurchasedduringthetwelvemonthsendedSeptember30,1977wasdeliveredbytheCompany'sunittrains,whichatSeptember30,1977consistedof980hoppercars.UseoftheCompany'shoppercarsfordeliveryofcoalminimizestheCompany'sdependenceuponrailroad-suppliedhoppercarswhichfromtimetotimeareinshortsupply.22
Theaveragedeliveredcostofcoalhasincreasedsubstantiallyoverthepastseveralyearsfrom$10.66pertonin1972to$25.79pertonduringthetwelvemonthsendedSeptember30,1977.TheaveragedeliveredcostofcoalpurchasedduringthetwelvemonthsendedSeptember30,1977wasasfollows:bituminouscoalpurchasedfromsubsidiarycompanies(includingcoalpurchasedbythosecompaniesintheopenmarket)andunderlong-termcontracts,$30.44perton;bituminouscoalpurchasedbytheCompanyundershort-termcontractsandintheopenmarket,$23.66perton;andanthracite,includingpetroleumcoke,$11.92perton.BituminouscoalpurchasedintheopenmarketbytheCompanyanditssubsidiariesisprimarilysurface-mined.BituminouscoalproducedbysubsidiarycompaniesandpurchasedbytheCompanyunderlong-termcontractsisdeep-mined.Oil.Thetwo820,000kwoil-firedgeneratingunitsattheCompany'sMartinsCreekstationaredesignedtoburneithercrudeorresidualoilandtofollowsignificantloadchangesoroperateasbaseloadunits.TheCompanyhascontractedwithoilsuppliersfortheexpectedrequirementsoftheMartinsCreekoilunitsthrough1979.Anagreementwithoneofthesuppliers,underwhichtheCompanycanpurchaseuptothree-quartersofitsexpectedoilrequirementsfortheseunits,providesforautomaticannualrenewalsbeyond1979unlessterminatedupononeyear'spriorwrittennoticebyeitherparty.OilfortheMartinsCreekstationisdeliveredtoadeepwaterterminalontheDelawareRiveratMarcusHook,Pennsylvania.TheCompanyhasalong-termcontractwithanunaffiliatedcompanytoprovideunloadingandoilstorageservicesatthatterminal.TheoillstransportedfromMarcusHooktostoragefacilitiesattheMartinsCreekstationbyapipelinewhichwasconstructedprimarilyfortheuseoftheCompanybyitssubsidiary,InterstateEnergyCompany(IEC).Thepipelineandrelatedfacilities,substantiallytheonlyassetsofIEC,wereplacedinserviceatacostofapproximately$55million.Ofthatamount,$40.5millionwasobtainedfromtheCompanyandthebalancewasborrowedfrombanks.TheCompanyexpectstoformalizeitsobligationsfortheoperatingexpensesandannualcarryingchargesofthepipelineinconnectionwiththepermanentfinancingofthesefacilitiesin1978.FERCandPUCtariffsareineffectforthedeliveryofoilbyIECfromMarcusHooktoMartinsCreek.TheCompanyandIEChavearrangedtoprovidepipelinedeliveryservicestoanotherutilitybeginninginmid-1978.Pipelinedeliveryservicesalsowillbeavailablefromthedeepwaterterminaltootherdeliverypointsatlocationsandtariffrateswhichhavenotyetbeenestablished.Nuclear.TheCompanypresentlyhasunderconstructiontwonuclear-fueledgeneratingunitsatitsSusquehannasite.See"CONSTRUCTIONPROGRAM".Inanticipationofthecommercialoperationoftheseunits,theCompanyhasmadecommitmentstomeetcertainofthenuclearfuelrequirementsfortheseunits.Thenuclearfuelcycleconsistsoftheminingandmillingofuraniumoretouraniumconcentrate;theconversionofuraniumconcentratetouraniumhexafluoride;theenrichmentofuraniumhexafluoride;thefabricationoffuelassemblies;theutilizationofnuclearfuelinthereactor;temporarystorageofspentfuel;andthereprocessingorpermanentdisposalofspentfuel.BaseduponthepresentlyscheduledIn-servicedatesandplannedfuelcyclesfortheseunitsthefollowingtabulationshowstheyearthroughwhichcontractsareexpectedtoprovidetheSusquehannastation'srequirementsforthevarioussegmentsofthenuclearfuelcycle,assumingfulfillmentbysuppliersoftheircontractualcommitments.23 44*!'~44III,I4I~!~ SusquehannaUnit1.....SusquehannaUnit2.....UraniumConcen-trate(1)(2)19831983Conversion198519852007200919941994Enrichment(3)FabricationReprocess-ing(3)19921992(1)TheCompanyhasanoptiontopurchaseaportionofasupplier'sproductionfortheyears1984-1990which,ifexercised,willprovideaportionoftheCompany'suraniumconcentraterequirementsforthatperiod.(2)Theuraniumconcentratesscheduledtobedeliveredthrough1983are,expectedtobesufficienttopermittheoperationoftheSusquehannaunitsthrough1985.UndertheCompany'senrichmentcontractswiththeDepartmentofEnergy(formerlytheEnergyResearchandDevel-opmentAdministration),theDepartmentofEnergymaymakechangesinenrichmentsPecifications.SuchchangesmaynecessitatetheacquisitionbytheCompanyofadditionalquantitiesofuraniumconcentrateduringtheperiodsindicatedinthetabulation.(3)ArulemakingproceedingregardingtherecycllngofspentfueliscurrentlypendingbeforetheNRC.TheCompanymayberequiredtoobtainadditionalenrichmentservicesafter1987iftheNRCpermitstherecyclingofplutoniumandtheCompanyisunabletohaveitsspentfuelreprocessed.TherearecurrentlynocommerciallyoperatingfacilitiesintheUnitedStatesforthereprocessingofspentfuel.ShipmentsfromSusquehannatothereprocessorwereinitiallyscheduledtobeginintheearly1980sfollowingtheexpansionofthereprocessor'sfacility.ThereprocessorhasinformedtheCompanythatbecauseoftheincreasedcapitalandoperatingcostsexpectedtobeincurredtocomplywithNRCcriteriarelatingtotheexpansion,thereprocessordoesnotintendtocontinueinthatbusinessandisseekingtoterminatethecontractwithrespecttotheSusquehannaunits.TheCompanyestimatesthattherewillbesufficientstoragecapabilityinthespentfuelpoolsatSusquehannatoaccommodatethefuelthatisexpectedtobedischargedthrough1984.BecausetheCompanydoesnotcurrently'anticipatebeingabletoshipspentfueloff-siteby1985forstorageorreprocessing,theCompanyisdevelopingplanstoinstalladditionalspentfuelstoragecapacityintheSusquehannaspentfuelpools.InApril1977PresidentCarterstatedthathewoulddeferindefinitelythecommercialreprocessingandrecyclingoftheplutoniumproducedindomesticandforeignnuclearpowerprograms.InOctober1977theDepartmentofEnergyproposedtoassumeresponsibilityforstorageanddisposalofspentnuclearfuelproducedinnuclearpowerplantswhilethequestionofultimatedisposalisbeingsettled.Undertheproposedpolicy,theFederalGovernmentwouldtaketitletospentnuclearfuelfromelectricutilitiesonpaymentofafeeandstoreitinaretrievablefashionataGovernmentapprovedsite.Additionalarrangements,forwhichthereisnopresentassurance,willberequiredtosatisfythefuelrequirementsoftheSusquehannaunitsovertheirestimatedusefullives.PowerPool.TheCompanyoperatesitsgenerationandtransmissionfacilitiesasapartofthePennsylvania-NewJersey-Maryland(PJM)Interconnection.ThePJMInterconnection,oneoftheworld'largestpowerpools,includeselevencompaniesservingabout21millionpeopleina50,000squaremile24 territorycoveringallorpartofPennsylvania,NewJersey,Maryland,Delaware,VIrginiaandWashington,D.C.ThePJMcompanieshadapproximately44.4millionkwofinstalledgeneratingcapacityatSeptember30,1977andtransmissionlineconnectionswithneighboringpowerpoolshavethecapabilityofsupplyinganadditional2.1millionkwtoPJMcompanies.ThroughSeptember30,1977themaximumone-hourdemandonthepowerpoolwasapproximately32.2millionkw,whichoccurredonJuly21,1977.TheCompanyisalsoapartytotheMid-AtlanticAreaCoordinationAgreementwhichprovidesforthecoordinatedplanningofgenerationandtransmissionfacilitiesbythecompaniesincludedinthePJMInterconnection.Regulation.TheCompanyisapublicutilityunderthelawsoftheCommonwealthofPennsylvaniaandissubjecttoregulationassuchbythePennsylvaniaPublicUtilityCommission.UntilOctober1,1977theCompanywassubjectincertainofitsactivitiestothejurisdictionoftheFederalPowerCommissionunderPartsI,IIandIIIoftheFederalPowerAct.EffectiveOctober1,1977thesefunctionsweretransferredinaccordancewiththeDepartmentofEnergyOrganizationActtotheFederalEnergyRegulatoryCommission,anindependentregulatorycommissionwithinthenewlycreatedDepartmentofEnergy.TheActalsotransferstotheSecretaryofEnergyallofthefunctionsoftheEnergyResearchandDevelopmentAdministration.See"BUSINESS-FuelSupply(Nuclear)".TheCompanyisaholdingcompanyunderthePublicUtilityHoldingCompanyActof1935buthasbeenexemptedbytheSecuritiesandExchangeCommissionfromtheprovisionsofthatActapplicabletoitasaholdingcompany.TheCompanyissubjecttothejurisdictionoftheNuclearRegulatoryCommissioninconnectionwiththeconstructionoftheSusquehannaunits.See"CONSTRUCTIONPROGRAM".TheCompanyisalsosubjecttothejurisdictionofcertainFederal,regional,stateandlocalregulatoryagencieswithrespecttoairandwaterquality,landuseandotherenvironmentalmatters.See"BUSINESS-EnvironmentalMatters".ThecoalminingoperationsoftheCompany'ssubsidiariesaresubjecttotheFederalCoalMineHealthandSafetyActof1969.EnvironmentalMatters.TheCompanyissubjecttocertainpresentanddevelopingFederal,regional,stateandlocallawsandregulationswithrespecttoairandwaterquality,landuseandotherenvironmentalmatters.Exceptasdescribedbelow,theCompanyispresentlyinsubstantialcompliancewithapplicableenvironmentallawsandregulationsandhasallofthepermitscurrentlyrequiredtooperateitsfacilities.Air.TheFederalCleanAirActAmendmentsof1977(1977Amendments)include,amongotherthings,provisionsthat:(a)requirethepreventionofsignificantdeteriorationofexistingairqualityinregionswhereairqualityisbetterthanapplicableambientstandards;(b)restricttheconstructionofnewemissionsources,includingcoalandoil-firedgeneratingstations,inareaswhichhavenotattainedspecifiedambientairqualitystandards;(c)revisethestandardsofperformanceapplicabletonewemissionsourcesandrequirethatfossilfueledgeneratingunitsachievetherevisedstandardsbytheapplicationofthebestavailablecontroltechnologywhichrequirement,ineffect,appearstoprohibittheuseoflowsulfurcoalatnewemissionsourceswithoutfurthertreatment,suchasthecleaningofcoalortheuseofscrubbers;and(d)requiretheUnitedStatesEnvironmentalProtectionAgency(EPA)toimposesubstantialpenaltiesforfailuretocomplywithairpollutionregulationsafterJuly1,1979andprovideforcivilpenaltiesofupto$25,000perdayforfacilitiesfoundtobeinviolationofanapplicablestateimplementationplan.25 UnderproceduresestablishedbythePennsylvaniaDepartmentofEnvironmentalResources(DER)priortothe1977Amendments,companiesnotincompliancewithemissionregulationshavebeenpermittedtoenterintoconsentorderswithDERwhichallowcontinuedoperationduringthetimeinwhichstepsarebeingtakentoachievecompliance.Inthisregard,theCompanyandtheDERhaveenteredintoaconsentorderwithrespecttoparticulateemissionregulationsasfollows:UnitBrunnerIslandNo.1.BrunnerIslandNo.3.MontourNo.1......MontourNo.2ComplianceDateDecember31,1980June30,1981June30,1981December31,1980Underthetermsoftheconsentorder,theCompanyisrequiredtomakecertainpaymentstothePennsylvaniaCleanAirFunduntilcomplianceisachieved,withrespecttoanyparticularunit.WhiletheCompanyisunableatthistimetoestimatetheexactamountofthepayments,itdoesnotexpectthatsuchpaymentsintheaggregatewillbematerialinamount.Asaresultofthe1977Amendments,theconsentordermayhavetoberevisedtoestablishanewcompliancedateofnotlaterthanJuly1,1979.SincetheCompanyhasbeenproceedingonaschedulewhichwasdesignedtoachievecompliancebythedatesshowninthetabulation,thereisaliighprobabilitythataJuly1,1979compliancedatemaynotbemetattheBrunnerIslandunits.TheCompanycurrentlyexpectsthattheinstallationoffluegasconditioningequipmentattheMontourunitswillpermittheCompanytoachievecomplianceatthoseunitsbyJuly1,1979.Estimatedexpendituresduringtheyears1977-1979toachievecomplianceattheBrunnerIslandandMontourunitsa'eincludedintheCompany'sestimateofconstructionexpendituresforthatperiod.See"CONSTRUCTIONPROGRAM".TheCompanyandDERarecurrentlydiscussingaconsentorderforUnitsNo.'3andNo.4attheCompany'sSunburystation.TheCompanyexpectsthatanyconsentorderwouldpermittheCompanytocontinuetooperatetheunitsduringthetimeinwhichtheCompanyistakingstepstoachievecompliancewithDERparticulateemissionstandards.TheCompanycurrentlyexpectsthattheUnitsNo.3andNo.4attheSunburystationcanbeincompliancewithapplicableDERstandardsbyJuly1,1979.InJuly1977EPAnotifiedtheCompanyofanallegedviolationattheCompany'sHoltwoodsteamstationofopacityemissionregulationsestablishedbyDER.Pendingresolutionofthismatter,whichiscurrentlythesubjectofappealsbytheCompanytotheEnvironmentalHearingBoardofDER,theCompanyiscontinuingtooperatetheHoltwoodsteamstationeventhoughDERhasnotissuedanoperatingpermitforthatstation.ThecontinuedoperationoftheHoltwoodsteamstationmaysubjecttheCompanytocertainpenaltieswhicharenotcurrentlyexpectedtobematerialinamount.TheprocessingofcoaltoreducethesulfurcontentpriortoburningpermitstheCompanytocomplywithcurrentsulfurdioxideemissionregulations.If,however,thesulfurdioxideemissionregulationsapplicabletotheCompany'sexistinggeneratingstationsareamendedtosignificantlyreducepermissibledischarges,theCompanymayberequiredtoinstallequipmentfortheremovalofsulfurdioxidefromfluegases.26 Water.TomeettheJuly1,1977standardof"bestpracticablecontroltechnologycurrentlyavailable"establishedbytheFederalWaterPollutionControlAct(WaterAct),theCompanyhasinstalledwastewatertreatmentfacilitiesatitssteamelectricstations.TheCompany'scoalminingsubsidiariesareplanningtoinstallwastewatertreatmentequipmentatcertainoftheirfacilitiesandhavefiledthenecessaryapplicationswithDER.ThefailurebythesubsidiariestomeettheJuly1,1977WaterActstandardmaysubjectthesubsidiariestofinesandpenaltieswhicharenotexpectedtobemateriallnamount.TheWaterActrequirestheapplicationofthe"bestavailabletechnologyeconomicallyachievable"byJuly1,1983withrespecttoeffluentdischargesfromexisting'facilities.Withrespectto"new"facilities,theWaterActauthorizesEPAtoestablishstandardsofperformancewhichwillrequirethe~applicationofthe"bestavailabledemonstratedcontroltechnology"including,wherepracticable,agoalofnodischargeofpollutants.TheWaterActalsorequiresthatthelocation,design,constructionandcapacityofcoolingwaterintakestructuresreflecttheapplicationofthe"besttechnologyavailableforminimizingadverseenvironmentalimpact".EPAhasadoptedeffluentlimitations,guidelinesandstandards.forsteamelectricstationsandguidelinesforexistingcoalmines.EPAlimitations,guidelinesandstandardsareenforcedthroughtheissuanceofdischargepermitswhichspecifytheapplicablelimitationsondischarges.Compliancewithapplicablestateandregionalwaterqualitystandardsisaccomplishedbyrequiringtheappropriatestateorinterstateagencytoissueawaterqualitycertificationwithrespecttoeachapplication.ThetermsandconditionsofanysuchwaterqualitycertificationmustbeincorporatedinthedischargepermitissuedbyEPA.EPAhasIssueddischargepermitsfortheoperationoftheCompany'sgeneratingstationsandforconstructionactivitiesattheCompany'sSusquehannastation.ApplicationsfordischargepermitsforthesewagetreatmentplantattheMontoursvilleservicecenterandthecoalminingoperationsoftheCompany'ssubsidiariesarependingbeforeEPA.DERhasissuedtherequiredwaterqualitycertificationforthePennsylvaniaMinesCorporationdischargepermits.TheCompanybelievesthatcertaindischargelimitationscontainedlntheDERcertificationfortheMontourstationaremorestringentthanthoseestablishedbyapplicableguidelinesandregulationsandhasrequestedahearingbeforeDERconcerningtheselimitations.DERalsoadministersstateandcertainregionallawsandregulationswithrespecttoeffluentdischargesandwaterquality.TheCompanyandDERarealsodiscussingthenecessityofinstallingadditionalwatertreatmentfacilitiesatcertainoftheCompany'splants.DelawareRiverBasinCommissionapprovaloftheCompany'swaterwithdrawalpermitfortheoil-firedunitsattheMartinsCreekstationrequirestheCompanytoprovidemake-upwateratcertaintimesortocurtailoperationoftheseunitsduringcertainperiodsoflowflowintheDelawareRiver.Itisthe27 tC.r Company'sintentiontosupplytherequiredmake-upwaterfromitsLakeWallenpaupackhydroelectricproject.See"BUSINESS-HydroelectricProjects".InconnectionwiththeconstructionoftheSusquehannastation,theCompanyisreviewingwiththeSusquehannaRiverBasinCommissiontheneedtoconstructareservoirtoprovidemake-upwaterduringcertainlow-flowperiodsintheSusquehannaRiver.TheCompanyestimatesthatthecostofthisreservoirwouldapproximate$45million.TheCompany'sshareofsuchcostduringtheyears1977-1979isincludedinitsestimateofconstructionexpendituresforthatperiod.See"CONSTRUCTIONPROGRAM".In1974theBoroughofTremont,Pennsylvania,andseveralresidentsoftheBoroughofTremontcommencedasuitagainsttendefendants,includingtheCompany,intheCourtofCommonPleas,SchuylkillCounty,Pennsylvania.Thecomplaintinthisproceeding(whichpurportstobeaclassactiononbehalfofallresidentsoftheBoroughofTremont)alleges,amongotherthings,thatthefailureofthedefendantstocomplywiththeprovisionsofvariousFederalandstateenvironmentallawsinconnectionwiththemaintenanceofcertainculmandsiltbanksinthevicinityoftheBoroughofTremontcausedtheplaintiffsnamedinthecomplainttosufferdamagesofapproximately$1.3millionduringthefloOdingresultingfromTropicalStormAgnes.InJuly1977GoldMills,Inc.commencedaquitagainstthesamedefendantscontainingsimilarallegationsandclaimingdamagesof$3.6million.Plaintiffsinbothproceedingsareseekingtorecoverpunitivedamagesinunspecifiedamounts.Nuclear.TheU.S.CourtofAppealsfortheDistrictofColumbiainJuly1976announceddecisionsintwocasestowhichtheCompanywasnotapartyconcerningthescopeoftheNRCenvironmentalreviewofnuclearplants.InonedecisiontheCourtheldthattheNRCmustgivefurtherconsiderationinallcasestotheenvironmentalimpactofthereprocessingofspentfuelandthedisposalofradioactivewastematerial.InOctober1976theNRCinitiatedrulemakingproceedingstoevaluatefurthertheenvironmentalImpactofreprocessingandwastedisposalandinMarch1977theNRCadoptedaninterimrulerelatingtothesematters.InAugust1977,initsdecisionterminatingtheshowcauseproceedingsinitiatedbyanenvironmentalgrouptohalttheconstructionoroperationof14nuclearfuelunitsinPennsylvaniaandNewJersey,includingtheSusquehannaunits,theNRCAppealPanelconcludedthattheapplicationoftheinterimrulewouldhavenooperativesignificanceonthecostbenefitanalysisfortheSusquehannaunits.ItisexpectedthattheresultsoftheNRCrulemakingproceedingswillserveasabasisforthecostbenefitanalysisrequiredbytheNationalEnvironmentalPolicyActof1969lnconnectionwiththeissuanceofoperatinglicensesfornuclearplantsincludingtheSusquehannaunits.IntheotherdecisiontheCourtheldthattheNRCmustconsiderenergyconservationasanalternativetotheconstructionofnuclearplantsinlicensingproceedingswhereenergyconservation(inadditiontoalternativemeansofgeneratingpower)israisedasanissue.TheNRChasnotinitiatedarulemakingproceedingwithrespecttoenergyconservationmatters.TheSupremeCourthasgrantedreviewofbothCourtofAppealsdecisions.TheactionoftheNRCinMarch1977inadoptingtheinterimrulerelatingtotheenvironmentalimpactoffuelreprocesslngandwastedisposalhasbeenappealedtotheU.S.CourtofAppealsfortheDistrictofColumbia.TheCompanyisunabletopredictwhatfurtheractionsmaybetakenbytheNRCortheCourtswithrespecttoanyofthesemattersortheeffectthatsuchactionsoractionsbyenvironmentalagenciescouldhaveonthecostorin-servicedatesoftheSusquehannaunits.See"CONSTRUCTIONPROGRAM".28 General.Duringtheperiod1972through1976,theCompany'sconstructionexpendituresaggregatedabout$1.47billion,ofwhichtheCompanyestimatesthatabout$82millionwasforcompliancewithFederal,stateandlocalenvironmentallawsandregulations.Approximately$97millionofcapitalexpendituresforsuchcomplianceareincludedintheCompany's1977-1979constructionprogramanditmaybethatsubstantialadditionalexpendituresforsuchpurposesinanamountnotnowdeterminablewillberequiredduringsuchperiodandthereafter.FromtimetotimetheCompanyanditssubsidiarieshavebeencitedforviolationsofDERandEPAairandwaterqualityregulationsinconnectionwiththeoperationoftheirfacilitiesand,asaresult,maybesubjecttocertainpenaltieswhicharenotexpectedtobematerialinamount.TheCompanyisunabletopredicttheultimateeffectofdevelopingenvironmentallawandregulationuponitsexistingandproposedfacilitiesandoperations.However,itispossiblethatsuchlawandregulationmayrequiretheCompanytomodify,supplement,replaceorceaseoperatingitsequipmentandfacilities,delayorimpedeitsconstructionandoperationofnewfacilities,andrequireittomakesubstantialadditionalexpendituresinamountswhicharenotnowdeterminable.HydroelectricProjects.TheCompanyoperatestheHoltwoodhydroelectricproject(102,000kwcapability)andtheWallenpaupackhydroelectricproject(44,000kwcapability),theoriginallicensesforwhichexpiredin1970and1974,respectively.PendingfinalactionontheCompany'sapplicationsfornewlong-termlicensesforbothprojects,FERChasgrantedtheCompanyinterimannuallicensestooperatetheprojects.Theinterimannuallicensesincorporatethetermsandconditionsoftheoriginallong-termlicenses.TheCompany'sHoltwoodapplicationisbeingopposedbyamunicipalelectricsystem.TheHoltwoodandWallenpaupackprojectsrepresentcurrentinvestmentsonadepreciatedoriginalcostbasisof$9.6millionand$10.1million,respectively.TheFederalPowerActprovidesthatif,uponexpirationofamajorprojectlicense,theUnitedStatestakesovertheprojectoralicensefortheprojectisissuedtoanewlicensee,theoriginallicenseeshallbepaidthe"netinvestment"intheproperty,nottoexceedfairvalue,plusseverancedamages,ifany.CertainreserveswhicharerequiredbytheActandwhichrelatetothecalculationof"netinvestment"havenotbeenrecordedpendingapprovaloftheamountsthereofbyFERC.InApril1977,FERCissuedaproposedrulemakingwhich,ifadopted,wouldrequirealicensee'torecordthesereservesbyanappropriationofearningsreinvested.Theamountofearningsreinvestedsoappropriatedwouldberestrictedastothepaymentofdividends.TheCompanyestimatesthatsuchreservesapplicabletotheperiod1946throughSeptember30,1977wouldnotexceed$3.0millionforitstwolicensedprojects.TheCompanyalsoownsone-thirdofthecapitalstockofSafeHarborWaterPowerCorporation(SafeHarbor)whichholdsamajorprojectlicensefortheoperationofitshydroelectricplant(230,000kwcapability).TheCompanyisentitledtoone-thirdofthecapacity(76,000kw)oftheSafeHarborplant.TheSafeHarborlicenseexpiresin1980.InApril1977SafeHarborfiledanapplicationwithFERCforanewlong-termlicenseandtheproposedinstallationoffiveadditional37,500kwunits.TheadditionalunitswillIncreasethetotalcapabilityoftheSafeHarborplantto417,500kwandtheCompanywillbeentitledtoone-thirdofthetotalcapacity(139,167kw).29
ELECTRlCSTATlST(CS1972197319741975YearEndedDecember31,1976TwelveMonthsEndedSeptem-ber30,1977(a)PowerCapability(thousandsofkw)Coal-firedsteamstations.............................Oil-firedsteamstation.................................Combustionturbinesanddiesels.................Hydroelectricstations..................................Firmpurchases{hydro)................................Total.PeakDemand{thousandsofkw)(b)....................SourcesofEnergy(millionsofkwh)GeneratedCoal-firedsteamstations...............,.....Oil-firedsteamstation..........................Combustionturbinesanddiesefs.........Hydroelectricstations...........................Powerpurchases..Total.DispositionofEnergy(millionsofkwh)Energysafestocustomers...........................Interchangepowersales(c)..........................Companyusesandlinelosses....................Total.FuelCostofEnergyGenerated(centsperkwh)..CostofCoalReceived,includingfreightandhandlingcost(perton)....................................EnergySales(millionsofkwh)Residential.Commercial.Industrial..Other.Total.OperatingRevenues(thousands)Residential.Commercial.Industrial.Other.Total.NumberofCustomers(endofperiod).................AverageUsePerResidentialCustomer(kwh).....AverageRevenue(centsperkwh)Residential.Commercial.Industrial..AllcustomersTotalOperatingExpensesperkwhofEnergySales(centsperkwh)(c)..................................3,345541146764,1083,5984,140541146764,9033,6624,140539146764,9013.7724,136820539146765,7174,1224,136820539146765,7174,4254,1361,640539146766,5374,42519,09724,7826012738248161,7841,96822,30627,83924,1862477721,57026,77525,3841~149848592,24129,71725,7511,947408092,12630,67326,3325,3981296852,10834,65217,0133.5861,70722,3060.4918,8657.2371,73727,8390.5018,9636,0791,73326,7750.8819,1138,7571,84729,7171.0420,3548,3581,96130,6731.1721,25011,5661,83634,6521.325,9853,9336,45863717,013$142,58592,55592,20126,226$343.667864,4398,0322.382.351.431.996,3244,2626,8811,39818,865$154,681101,67099,92825,868$382,147886,3788,2532.452.391.452.006,4944,2757,1701,02416.663$187,265121,314131,45227,539$467,570902,1488,2872.882.841.832.446,8184,5757,02070019,113$218,904143,673150,36525,686$538,628917,9208,5283.213.142.142.787,2674,8747,48173220,354$257,828170,990180,95729,949$639,724936,2198,9313,553,512.423.107,6075,1957,69875021,250$294,063198,158205,61033,002$730,833946,9869,1973.873.812.673.401.541.521.882.212.49'.61$10.66$11.89$20.80$23.38$25.36$25.79(d)(a)ConsolidatedstatisticsoftheCompanyandHersheyElectricCompanysinceJanuary1,1977.(b)Winterpeakshownfortheyears1972-1976wasreachedearlyinsubsequentyear.TheCompanyestimatesthatitwouldhaveexperiencedapeakfor1976andthetwelvemonthsendedSeptember30,1977of4,514,000kwifa5/ovoltagereductionhadnotbeenineffect.(c)Asprovidedintheapplicableregulatorysystemofaccounts,receiptsfrominterchangepowersaleshavebeentreatedasreductionsofoperatingexpenses.(d)Thecostofcoalreceived,includingfreightandhandlingcosts,was$26.06pertoninthemonthofSeptember1977.30 DESCRIPTIONOFBONDSGeneral.TheBondswillmatureDecember1,2007,willbearinterestattherateshownintheirtitlepayableJune1andDecember1,andwillbeissuedonlylnregisteredformindenominationsof$1,000andmultiplesthereof.TheBondswillbeissuedunderaMortgageandDeedofTrust,datedasofOctober1,1945,assupplemented(Mortgage),ofwhichMorganGuarantyTrustCompanyofNewYorkisTrustee.PrincipalandinterestwillbepayableinNewYorkCityattheofficeoragencyoftheCompany,whichinitiallywillbetheprincipalofficeoftheTrustee.InterestalsowillbepayableatthegeneralofficesoftheCompanyinAllentown,Pennsylvania.ExchangesandtransfersoftheBondsmaybemadeattheprincipalofficeoftheTrusteeorattheofficesofsuchothercompaniesastheCompanymaydesignatefromtimetotime.TheCompanydoesnotpresentlyplantodesignateanyothercompanyforsuchpurpose.TherewillbenochargebytheCompanyforanyexchangeortransferoftheBonds.StatementshereinconcerningtheBondsandtheMortgagearebriefsummariesanddonotpurporttobecomplete.TheymakeuseoftermsdefinedintheMortgage,andarequalifiedintheirentiretybyexpressreferencestothecitedSectionsandArticles.TheBondsdonothaveanysinkingorimprovementfundorotherprovisionforamortizationpriortomaturity.However,allseriesofbondscreatedpriorto1973dohavesinkingorimprovementfundprovisions.RedemptionandPurchaseoftheBonds.TheBondswillberedeemable,inwholeorinpart,on30days'otice(a)atthefollowingspecialredemptionpricesforthemaintenanceandreplacementfund,orwithcertaindepositsandproceedsofproperty,and(b)atthefollowinggeneralredemptionpricesforallotherredemptions:IfRedeemedDuringTwelveMonthsPeriodEndingNovember301978.................1979.................1980.................1981.................1982.................1983.................1984.................1985..~..............1986...........~.....1987.................1988.................1989.................1990.................1991.................1992.................GeneralRedemptionPriceso/oSpecialRedemptionPricesO/0IfRedoemedDuringTwelveMonthsPeriodEndingNovember301993.................'I994.................1995.................1996.................1997.................1998.................1999.................2000.................2001.................2002.................2003.................2004.................2005.................2006.................2007.................O/0o/o100.00100.00GeneralSpecialRedemptionRedemptionPricesPrices31 I' ineachcase,togetherwithaccruedinteresttothedatefixedforredemption;providedthatnoBondsshallberedeemableatthegeneralredemptionpricespriortoDecember1,1982,withborrowedfundsorinanticipationoffundstobeborrowed,havinganeffectiveinterestcosttotheCompany(calculatedinaccordancewithacceptablefinancialpractice)oflessthanloperannum.TheredemptionmaybemadesubjecttoreceiptbytheTrusteeoftheredemptionmoneysbeforethedatefixedforredemptionandtheredemptionnoticeshallbeofnoeffectunlesssuchmoneysaresoreceived.CashdepositedunderanyprovisionsintheMortgage(withcertainexceptions)maybeappliedtothepurchaseofbondsofanyseries.(Mortgage,Art.XandTwenty-thirdSupplemental,Sec.1.)MaintenanceandReplacementFund.Eachyear15V~/oofadjustedgrossoperatingrevenuesmustbespentformaintenanceandreplacementsofmortgagedelectric,gas,steamandhotwaterpropertyandcertainautomotiveequipment.TheCompanynowownsnogasorhotwaterproperty.SuchrequirementsmaybemetbydepositingcashwiththeTrustee;certifyingexpendituresformaintenanceandrepairsofsuchproperty,forgrosspropertyadditionsandforcertainautomotiveequipment;orbytakingcreditforbondsandqualifiedpriorlienbondsretired.Suchcashmaybewithdrawnonsimilarbases.TheCompanyhasreservedtheright(withoutanyconsentorotheractionbytheholdersofanyseriesofbondscreatedafterJanuary1973,includingtheBonds)tomakesuchamendmentstotheMortgageasshallbenecessarytodeletetheMaintenanceandReplacementFund.TheCompanyhasnopresentintentionofrequestingabondhoidersmeetingtodeletetheMaintenanceandReplacementFund.(Mortgage,Sec.39;Twenty-thirdSupplemental,Sec.3.)SpecialProvisionsforRetirementoftheBonds.If,duringanytwelve-monthperiod,mortgagedpropertyisdisposedofbyorderofortoanygovernmentalauthority,resultinginthereceiptof$10millionormoreasproceeds,theCompany(subjecttocertainconditions)mustapplysuchproceeds(lesscertaindeductions)totheretirementofbondsofanyseries.TheBondsareredeemableatthespecialredemptionpricesinthatevent.(Mortgage,Sec.64.)Security.TheBonds,togetherwithallotherbondsnoworhereafterissuedundertheMortgage,willbesecuredbytheMortgage,whichconstitutes,intheopinionofEdwardM.Nagel,Esq.,GeneralCounseloftheCompany,afirstmortgagelienonalloftheCompany'sproperties(exceptthosereferredtobelow),subJectto(1)leasesofminorportionsoftheCompany'spropertytoothersforuseswhich,inhisopinion,donotinterferewithitsbusiness,(2)leasesofcertainpropertyoftheCompanynotusedinitselectricutilitybusiness,(3)minordefects,irregularitiesanddeficienciesintitlesofpropertiesandrights-of-way,whichdonotmateriallyimpairtheuseofsuchpropertyandrights-of-wayforthepurposesoftheCompany,(4)otherexceptedencumbrances,and(5)astocertainpropertysituatedprimarilyinLackawanna,Luzerne,Susquehanna,WayneandWyomingCounties,Pennsylvania,thepriorlienofTheScrantonElectricCompanyMortgageandDeedofTrust,datedFebruary15,1937,assupplemented.Ingeneral,thereareexceptedfromthelienoftheMortgageallcashandsecurities;equipment,apparatus,materialsorsuppliesheldforsaleorotherdisposition;aircraft,automobilesandothervehicles;timber,minerals,mineralrightsandroyalties;andreceivables,contracts,leasesandoperatingagreements.TheMortgagecontainsprovisionsforincludingafteracquiredpropertywithinthelienthereof,subjecttoanypre-existingliensandtocertainlimitationsinthecaseofconsolidation,mergerorsaleofsubstantiallyalloftheCompany'sassets.(Mortgage,Sec.87.)32 AIi$ IssuanceofAdditionalBonds.Bondsofanyseriesmaybeissuedfromtimetotimeonthebasesof:(1)60/oofpropertyadditionstoelectric,gas,steamorhotwaterproperty,acquiredafterJune30,1945,butnotincludingnaturalgasproductionpropertyandafteradjustmentsforretirementsoffundedpropertyotherthanpropertyforsupplyingwater;(2)retirementofbondsorqualifiedpriorlienbonds;and(3)depositofcash.Withcertainexceptionsinthecaseof(2)above,theissuanceofbondsrequiresadjustednetearningsbeforeincometaxesfortwelveoutoftheprecedingfifteenmonthsofatleasttwicetheannualinterestrequirementsonallbondsatthetimeoutstanding,includingthosebeingissued,andonallindebtednessofpriorrank.Incomputingadjustednetearnings,anamountequaltothemaintenanceandreplacementfundrequirementsmustbeusedinlieuofactualexpendituresformaintenanceandrepairsandprovisionsforpropertyretirement.Theissuanceofbondsonthebasisofpropertyadditionssubjecttoliensisrestricted.Itisexpectedthat$20.5millionofBondswillbeissuedagainsttheretirementofalikeprincipalamountofbondswhichmaturedduring1977andtheremainderwillbeissuedagainstunfundedpropertyadditionsandthat,aftergivingeffectto,theproposedsaleofa10/oundividedownershipinterestintheSusquehannaunits(see"CONSTRUCTIONPROGRAM")andtheissuanceoftheBonds,unfundedpropertyadditionsremainingwouldhavebeenapproximately$660million,asofSeptember30,1977.Inaddition,whenthebondsofallseriesissuedpiiorto1973havebeenretired,propertyadditionstheretoforefundedtosatisfysinkingorimprovementfundsforsuchserieswillreverttounfundedstatus.TheCompanyhasreservedtherighttoamendtheMortgagewithoutanyconsentorotheractionbyholdersofanyseriesofbonds(includingtheBonds)created(1)afterFebruary28,1970toincludeNuclearFuel(andsimilaroranalogousdevicesorsubstances)asPropertyAdditions,and(2)afterNovember30,1976tomakeavailableasPropertyAdditionsvariousformsofspacesatellites,spacestationsandotheranalogousfacilities,variousfueltransportationfacilities(primarilyrailroadcarsandotherrailroadequipment,tankersandothervessels),andgenerally,electric,gasandenergyorfuelproperty(includingpropertyforthedevelopmentofelectricity,gasandfuelorenergyinanyform)andwaterandsteamheatproperty.SuchpropertycouldbelocatedanywhereifdulysubjecttothelienoftheMortgageandusefulinconnectionwiththeenergy,fuelorwaterbusiness.Exceptedpropertywouldcontinuetoincludepropertyusedprincipallyfortheproductionorgatheringofnaturalgas.Theamountoftheobligationssecuredbypriorliensonmortgagedpropertymaybeincreased,providedthat,ifanypropertysubjecttosuchpriorlienshallhavebeenmadethebasisofacreditundertheMortgage,alltheadditionalobligationsaredepositedwiththeTrusteeorthetrusteeorotherholderofaqualifiedlien.However,noadditionalScrantonbondsmaybeissuedexcepttorefundorreplacethosepresentlyoutstandingunlessconsentedtobytheholdersof70/oofthebonds.(Mortgage,Secs.4to7,20to30,and46,ThirteenthSupplemental,Sec.4,Twenty-secondSupplemental,Sec.3andTwenty-thirdSupplemental,Sec.7.)ReleaseandSubstitutionofProperty.Propertymaybereleaseduponthebasesof(1)thedepositofcash,or,toalimitedextent,purchasemoneymortgages,(2)propertyadditions,afteradjustmentsincertaincasestooffsetretirementsandaftermakingadjustmentsforqualifiedpriorlienbondsoutstandingagainstpropertyadditions,and(3)waiveroftherighttoissuebondswithoutapplyinganyearningstests.Cashmaybewithdrawnuponthebasesstatedin(2)and(3)above.(Mortgage,Art.XIandSecs.5,31,32,37,46to50,100and118.)33 /1 DividendCovenant.Nocashdividendsoncommonstockmaybepaidunlessaftersuchpaymentstheamountremaininginearnedsurplus(hereindescribedasearningsreinvested)plustheprovisionsmadesubsequenttoSeptember30,1945fordepreciationandretirementofpropertyshallequalthemaintenanceandreplacementfundrequirementsoftheMortgageforsuchperiod,lessmaintenanceexpenditures.(Mortgage,Sec.39andTwenty-thirdSupplemental,Sec.2.)ReferenceisalsomadetoNote7toFinancialStatements.ModificationofMortgage.Bondholders'ightsmaybemodifiedwiththeconsentoftheholdersof70%ofthebonds.Iflessthanallseriesofbondsareaffected,theconsentoftheholdersof70%ofeachseriesaffectedisalsorequired.TheCompanyhasreservedtheright(withoutanyconsentorotheractionbyholdersofanyseriesofbondscreatedafter1970,includingtheBonds)tosubstitute66%%for70%intheforegoingprovisions.Ingeneral,nomodificationofthetermsofpaymentofprincipalorinterestandnomodificationaffectingthelienorreducingthepercentagerequiredformodificationiseffectiveagainstanyBondholderwithouthisconsent.(Mortgage,Art.XIX,FourteenthSupplemental,Sec.4.)DefaultsandNoticeThereof.Defaultsare:defaultinpaymentofprincipal;defaultfor60daysinpaymentofinterestorofinstallmentsoffundsforretirementofbonds;certaindefaultswithrespecttoqualifiedlienbonds;certaineventsinbankruptcy,insolvencyorreorganization;anddefaultfor90daysafternoticeinothercovenants.TheTrusteemaywithholdnoticeofdefault(exceptinpaymentofprincipal,interestoranyfundforretirementofbonds),ifitthinksitisintheinterestsoftheBondholders.(Mortgage,Secs.65and66.)Holdersof25%ofthebondsmaydeclaretheprincipalandinterestdueondefault,butamajoritymayannulsuchdeclarationIfsuchdefaulthasbeencured.NoholderofbondsmayenforcethelienoftheMortgageunless(1)hehasgiventheTrusteewrittennoticeofadefault;(2)holdersof25%ofthebondshaverequestedtheTrusteetoactandoffereditreasonableopportunitytoactandindemnitysatisfactorytotheTrusteeagainstthecosts,expensesandliabilitiestobeincurredthereby;and(3)theTrusteehasfailedtoact.TheTrusteeisnotrequiredtoriskitsfundsorincurpersonalliabilityifthereisreasonablegroundforbelievingthattherepaymentisnotreasonablyassured.Amajorityofthebondsmaydirectthetime,method,andplaceofconductinganyproceedingsforanyremedyavailabletotheTrustee,orexercisinganytrustorpowerconferredupontheTrustee.(Mortgage,Secs.67,71,80and95.)EvidencetoBeFurnishedtotheTrustee.CompliancewithMortgageprovisionsisevidencedbywrittenstatementsoftheCompany'sofficersorpersonsselectedorpaidbytheCompany.Incertainmajormatters,theaccountant,appraiser,engineerorcounselmustbeindependent.Variouscertificatesandotherpapersarerequiredtobefiledannuallyandincertainevents,includinganannualcertificatewithreferencetocompliancewiththetermsoftheMortgageandabsenceofDefaults.CertainTaxMatters.IntheopinionofEdwardM.Nagel,Esq.,GeneralCounseloftheCompany,BondsownedbyindividualsresidinginPennsylvaniaaresubjecttothe4millsPennsylvaniacorporateloanstax.Suchtaxwillbewithheldfrominterestpaymentstosuch'individuals.Mr.NagelisalsooftheopinionthattheBondsareexemptfromexistingpersonaipropertytaxesinPennsylvania. EXPERTSThebalancesheetasofDecember31,1976andtherelatedstatementsofincome,earningsreinvestedandchangesinfinancialpositionforeachofthefiveyearsintheperiodendedDecember31,1976includedlnthisProspectushavebeenexaminedbyHaskins&Sells,independentCertifiedPublicAccountants,asstatedintheiropinionappearingherein,andhavebeensoincludedinrelianceuponsuchopiniongivenupontheauthorityofthatfirmasexpertsinaccountingandauditing.StatementsmadehereinastomattersoflawandlegalconclusionshavebeenreviewedbyEdwardM.Nagel,Esq.,GeneralCounseloftheCompany,andhavebeenmadeinrelianceonhisauthorityasanexpert.InformationinthetabulationoftheAssignedReservesandUnassignedReservesundertheheadings"EstimatedRecoverableReservesasofJanuary1,1976"and"Average/oSulfur(ByWeight)"underthecaption"BUSINESS-FuelSupply(Coal)"wasprovidedbyPaulWeirCompanyIncorporatedandisincludedhereininrelianceonitsauthorityasanexpert.LEGALOPINIONSThevalidityoftheBondswillbepasseduponfortheCompanybyEdwardM.Nagel,Esq.,GeneralCounseloftheCompany,andMessrs.Reid&Priest,NewYork,N.Y.,andforthePurchasersbyMessrs.Sullivan&Cromwell,NewYork,N.Y.However,allmatterspertainingtotheorganizationoftheCompany,titlesandthelienoftheMortgageandallmattersoflawoftheCommonwealthofPennsylvaniawillbepassedupononlybyMr.Nagel,whoisafull-timeemployeeoftheCompany.OPINIONOFINDEPENDENTCERTIFIEDPUBLICACCOUNTANTSPENNSYLVANIAPOWER&LIGHTCOMPANY:WehaveexaminedthebalancesheetofPennsylvaniaPower&.LightCompanyasofDecember31,1976andtherelatedstatementsofincome,earningsreinvested,andchangesinfinancialpositionforeachofthefiveyearsintheperiodendedDecember31,1976.Ourexaminationwasmadeinaccordancewithgenerallyacceptedauditingstandardsand,accordingly,includedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircum-stances.Inouropinion,suchfinancialstatementspresentfairlythefinancialpositionoftheCompanyatDecember31,1976andtheresultsofitsoperationsandthechangesinitsfinancialpositionforeachofthefiveyearsintheperiodendedDecember31,1976,inconformitywithgenerallyacceptedaccountingprinciplesapplied(exceptforthechangein1974,withwhichweconcur,inthemethodofaccountingforrecoverablefuelcostsasdescribedinNote(b)totheStatementofIncome)onaconsistentbasis.HASKINS&SELLSNewYork,NewYorkFebruary3,197735 I' PENNSYLVANIAPOWER&LIGHTCOMPANYBALANCESHEETASSETSThousandsofDollarsSeptember30,December31,19771976(Unaudited)UTILITYPLANTPlantlnservice-atoriginalcostElectric................................Steamheat.TotalplantfnserviceLessaccumu'lateddepreciation(Note5).Netplantinservice..Constructionworkinprogress-etcost.Nuclearfuelinprocess-atcost..Netutilityplant(Note8).INVESTMENTSAssociatedcompanies-atequity.Nonutilitypropertyandother-atcostorless.Totalinvestments..CURRENTASSETSCash(Note4).Accountsreceivable(lessreserve:1976,$1,925;1977,$2,809)Customers.Other.Notesreceivable(principallyfromassociatedcompany)..Recoverablefuelcosts.Coalandfueloil-ataveragecost.Materialsandsupplies-ataveragecost.Other.Totalcurrentassets..DEFERREDDEBITS.$2,090,2827,8962,098,178458,6971,639,481720,54420,0842,380,10915,3277,54822,87514,95549,20522,85729,57041,67074,88519,0687,219259,4294,884$2,303,5477,9082,311,455495,8761,815,579758,92733,4132,607,91916,3447,46923,81313,44245,23738,55329,50047,296102,11719,65910,917306,7216,454Total..$2,667,297$2,944,907SeeaccompanyingNotestoFinancialStatements.36 PENNSYLVANIAPOWER&LIGHTCOMPANYBALANCESHEETLIABILITIESThousandsofDollarsSeptember30,December31,19771976.(Unaudited)CAPITALIZATIONShareownersinvestment(Notes6,7and9)Preferredstock.Preferencestock..Commonstock.CapitalstockexpenseEarnIngsrelnvested.TotalshareownersInvestment..Long-termdebt(Note8).Totalcapitalization..CURRENTLIABILITIESLong-termdebtduewithinoneyear(Note8).Commercialpapernotes(Note4).Accountspayable..Taxesaccrued.DeferredIncometaxesapplicabletorecoverablefuelcosts.DMdendspayable.Interestaccrued.DepositsfromAlleghenyElectricCooperative(Note14).Other..TotalcurrentliabilitiesDEFERREDANDOTHERCREDITSDeferredinvestmenttaxcredits.....Deferredincometaxes.Other..Totaldeferredandothercredits.COMMITMENTSANDCONTINGENTLIABILITIES(Note15)$231,375210,000495,008(10,220)237,9671,164,1301,161,3192,325,44920,67560,01260,34212,56422,06023,00222,58911,257232,50156,52636,86015,961109,347$231,375206,000575,458(10,428)274,3581,276,7631,157,8562,434,6193,67691,46071,93623,29725,03925,65630,82678,84920,820371,55977,44543,53817,746138,729Total$2,667,297$2,944,907SeeaccompanyingNotestoFinancialStatements.37 ill,t PENNSYLVANIAPOWER&LIGHTCOMPANYSTATEMENTOFCHANGESINFINANCIALPOSITION1972197319741975ThousandsofDollarsYearEndedDecember31,1978TwelveMonthsEndedSeptember30,1977(unaudited)SOURCEOFFUNDSOperationsNetincome(1974includes$4,162nonrecurringcredit)..Charges(credits)againstincomenotInvolvingworkingcapitalDepreciation..NoncurrentdeferredincometaxesandInvestmenttaxcredits-net..........................Allowanceforfundsusedduringconstruction..Other.41,4467,984(14,647)22092,92448,83711,282(14,967)220112,28452,3998,790(20,732)520128,45658,54015,701(36,605)7,464142,64162,47831,789(45,192)4,669165,85566,39042,338(49,918)8,524213,149$57,921$66,912$87,479$97,541$112,111$145,815OutsideFinancingCommonstockPreferredstockPreferencestock.Firstmortgagebonds.Otherlong-termdebt.Short-termdebt-netincrease.....WorkingCapital-decrease(a)InvestmentsinAssociatedCompanies-decrease.....DepositsfromAlleghenyElectricCooperative............Other-net.TotalSourceofFunds..........................APPLICATIONOFFUNDSConstructionExpenditures.NuclearFueltnPr'ocess.AllowanceforFundsUsedDuringConstruction.........46,94035,00075,0008,34220,231185,51383598$279,11840,90040,000108,00020,024208.9243,1562,672$327,036(14,647)204,107(14,967)209,529$218,754$224,49635,15625,000180,00036045,658286,17468557,76370,000225,000208352,97115,166$267,7243,736(20,732)250,728$342,4962,793(36,605)308,684$415,315$510,77882,70575,000150,000253397.95816,8946,424$497,131$394,23813,555(45,192)362,60184,994l150,000196235.19078,8494,351$531,539$365,73716,464(49,918)332,283SecuritiesRetiredPreferencestock..Firstmortgagebonds..Otherlong-termdebtShort-termdebt-netdecrease...DividendsonPreferred,PreferenceandCommonStockWorkingCapital-tncrease(a).AcquisitionofHersheyElectricCompany.......................InvestmentsinAssociatedCompanie~ncrease..........Other-net.TotalApplicationofFunds........................15,00010,05725,05743,3306,62410,04156,63166,67250,037798$279,118$327,03618,63218,63258,89782,7534,305$415,31593,00011211,879104,99170,68623,9902,427$510,7788,0003,05413,61824,67286,69415,3097,855$497,1314,00028,50024841,82074,56897,20313,0567,8556,574$531,539ChangesinComponentsofWorkingCapital(a)Cash,temporarycashinvestmentsandspecialfunds....Accountsandnotesreceivabte.Fuelinventory.Recoverablefuelcosts,lessrelateddeferredIncometaxes.Accountspayableandaccruedtaxes.............................Dividendspayableandinterestaccrued.........................Other-netIncrease(Decrease)..................................$(468)5,2613,498(2,541)(4,231)5,105$6,624$10,2476,745(4,717)(10,006)(5,136)(289)$(3,156)$(3,792)22,89645,00216,747(1,811)(6,494)10,205$82,753$(5,352)28,757(3,568)738(22,507)(6,346)(6,888)$(15,166)$12316,3946,5672,125(1,426)4,612)3,862)$15,309$(15)32,60033,6612,389(40,281(6,368)(8,930$13,056(a)Excludesshort-termdebt,long-termdebtduewithinoneyearandAlleghenydeposits.SeeaccompanyingNotestoFinancialStatements.38 PENNSYLVANlAPOlVER85LIGHTCOMPANYSTATEMENTOFEARNINGSREINVESTED1972YearEndedDecember31,197319741975ThousandsofDollars1976TwelveMonthsEndedSeptember30,1977(Unaudited)BALANCEATBEGINNINGOFPERIOD............ADDNETINCOME(1974includes$4,162nonrecurringcredit).$125,647$140,238$157,113$185,695$212,55057,92166,91287,47997,541112,111$225,752145,815Total.183568,207,150244,592283,236324,661371,557DEDUCTCashDividendsDeclaredPreferredstock(atspecifiedannualrates)..Preferencestock(atspecifiedannualrates)..Commonstock(pershare-1972,$1.64;1973,$1.68;1974,$1.77;1975and1976,$1.80;twelvemonthsendedSeptember30,1977,$1.86)..Other(Note6)6,4338,09328,8047,5519,64032,8469,39310,26339,2419,39315,11646,17713,12820,24053,32616,32319,96360,9176TotalBALANCEATENDOFPERIOD(Notes7and9)43,330$140,23850,037$157,11358,897$185,69570,68686,694$212,550$237,96797,209$274,358SeeaccompanyingNotestoFinancialStatements39
PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS(InformationtorthePeriodEndedSeptember30,1977launaudited)1.SUMMARYOFACCOUNTINGPOLICIESAccountingSystem~AccountingrecordsaremaintainedinaccordancewiththeUniformSystemofAccountsprescribedbytheFederalEnergyRegulatoryCommission(FERC)andadoptedbythePennsylvaniaPublicUtilityCommission(PUC).Referenceismadeto"BUSINESS-Regulation"forinformationregardingthetransferofthefunctionsoftheFederalPowerCommissiontoFERCinaccordancewiththeDepartmentofEnergyOrganizationAct.PrinciplesofConsolidationTheaccountsoftheCompanyandHersheyElectricCompany,awholly-ownedelectricdistributionsubsidiaryacquiredDecember31,1976,areconsolidatedintheaccompanyingfinancialstatementsasoftheacquisitiondate.Allsignificantintercompanytransactionshavebeeneliminated.TheoperationsofHersheyElectricCompanyarenotmaterialcomparedtothatoftheCompany.ReferenceismadetoNote13toFinancialStatements.AssociatedCompaniesInvestmentsinunconsolidatedsubsidiaries(allwholly-owned)andinSafeHarborWaterPowerCorporation(representingone-halfofthatcompany'svotingsecurities)arerecordedusingtheequitymethodofaccounting.TheCompany'sunconsolidatedsubsidiariesareengagedincoalminingoperations,holdingcoalreservesanduraniumminingclaims,oilpipelineoperationsandrealestate.TheCompanybelievesthatitsfinancialpositionandresultsofoperationsarebestreflectedwithoutconsolidationofthesesubsidiariessincetheyarenotengagedinthebusinessofgeneratinganddistributingelectricity.Ifalltheunconsolidatedsubsidiarieswereconsideredintheaggregateasasinglesubsidiary,theywouldnotconstitutea"significantsubsidiary"asthattermisdefinedbytheSecuritiesandExchangeCommission.UtilityPlantAdditionstoutilityplantandreplacementsofunitsofpropertyarecapitalizedatcost.Costsofdepreciablepropertyretiredorreplacedareremovedfromutilityplantandsuchcosts,plusremovalcosts,lesssalvage,arechargedtoaccumulateddepreciation.CostsoflandretiredorsoldareremovedfromutilityplantandanygainsorlossesarereflectedontheStatementofIncome.Allexpendituresformaintenanceandrepairsofpropertyandthecostofreplacementofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.40 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)AllowanceforFundsUsedDuringConstructionAsprovidedintheUniformSystemofAccounts,thecostoffundsusedtofinanceconstructionworkinprogressiscapitalizedaspartofconstructioncost.ThecomponentsofAllowanceforfundsusedduringconstructionshownontheStatementofIncomeunderOtherIncomeandDeductionsandInterestChargesarenon-cashitemsequaltotheamountsocapitalizedandservetooffsettheactualcostoffinancingconstructionworkinprogress.ReferenceismadetoNote(e)tothe"STATEMENTOFINCOME".DepreciationForfinancialstatementpurposes,thestraight-linemethodofdepreciationIsusedtoaccumulateanamountequaltothecostofutilityplantandremovalcosts,lesssalvage,overtheestimatedusefullivesofproperty.ReferenceismadetoNote5toFinancialStatements.RevenuesRevenuesarebasedoncyclebillingsrenderedtocertaincustomersmonthlyandothersbi-monthly.TheCompanydoesnotaccruerevenuesrelatedtoenergydeliveredbutnotbilled.FuelCostsRecoverableUnderFuelAdjustmentClausesTheCompany'stariffsfiledwithboththePUCandFERCincludefueladjustmentclausesunderwhichfuelcostsvaryingfromthelevelsallowedinapprovedrateschedulesarereflectedincustomers'illsafterthefuelcostsareincurred.Thechargetoexpenseforfuelcostsrecoverableinthefuturethroughapplicationoffueladjustmentclausesisdeferredtotheperiodsinwhichthesecostsarebilledtocustomers.ReferenceismadetoNotes(b)and(c)tothe"STATEMENTOFINCOME"andto"RATEMATTERS"forfurtherinformationregardingthefueladjustmentclausesandaPUCorderproposingtoreplacetheexistingfueladjustmentclausewithalevelizedenergycostrate.IncomeTaxesTheCompanyanditssubsidiariesfileaconsolidatedFederalincometaxreturn.Incometaxes.areallocatedtotheindividualcompaniesbasedontheirrespectivetaxableincomeorloss.IncometaxesareallocatedtoOperatingExpensesandOtherIncomeandDeductionsontheStatementofIncome.IncometaxcreditsrecordedunderOtherIncomeandDeductionsresultprincipallyfromthetaxdeductionsrelatedtointerestexpenseassociatedwithfinancingconstructionworkinprogress.DeferredtaxaccountingisfollowedforitemswheresimilartreatmentinratedeterminationshasbeenorisexpectedtobepermittedbythePUC.Theprincipalitemsareacceleratedamortizationofcertifieddefensefacilitiesandpollutioncontrolequipment,deductionofcostsofremovingretireddepreciableproperty,thatportionoftaxdepreciationarisingfromshorteningdepreciablelivesby20'loundertheclass41 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)lifedepreciationsystem,fuelcostsrecoverableunderfueladjustmentclauses,theforcedoutagereserveandthecostoffuelconsumedduringthetestperiodofnewgeneratingfacilities.Taxreductionsarisingprincipallyfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddifferentlyfortaxcomputationthanforbookpurposesareaccountedforundertheflow-throughmethod.Investmenttaxcredits,whichresultinareductionofFederalincometaxespayable,aredeferredandamortizedovertheaveragelivesoftherelatedproperty.Thetaxcreditsaregenerallyequalto10/oof(1)thecostofcertainpropertyplacedinserviceand,insomeinstances,(2)partialpaymentsofconstructioncostsofotherfacilities.In1976theCompanyadoptedanEmployeeStockOwnershipPlan(ESOP)whichpermitstheCompanytoclaimanadditional1/oinvestmenttaxcredit.AnamountequaltothisadditionalcreditispaidtothetrusteefortheESOPtoacquireCommonStockoftheCompanyforemployees.ReferenceismadetoNote10toFinancialStatements.RetirementPlanTheCompanyhasaRetirementPlancomposedoftwoparts:(1)anon-contributoryportionwhichprovidesbenefitsforalleligibleactiveemployeeswiththefullcostabsorbedbytheCompany,and(2)avoluntaryportionInwhichcontributionsaremadebybothemployeesandtheCompany,butthefullcostofpastserviceandPlanimprovementsisbornebytheCompany.Approximately95/oofeligibleactiveemployeesaremembersofthevoluntaryportionofthePlan.CompanycontributionstothePlanincludeamountsrequiredtofundcurrentservicecostsandtoamortizeunfundedpastservicecostsoverperiodsofnotmorethan20years.ReferenceismadetoNote11toFinancialStatements.ForcedOutageReserve~Aself-insurancereserveisprovidedtocovertheincreasedlevelofpowercostswhichareexperiencedwhenanyoftheCompany'smajorgeneratingunitsareforcedoutofserviceduetodamagecausedbyaccidentorotherunforeseeninsurableoccurrences.Increasedpowercostsresultingfrompurchasingorgeneratingreplacementpowerathighercostsorlossofinterchangesalesinexcessof$0.5millionthrough1975and$1millioneffectiveJanuary1,1976foreachaccidentoroccurrencearechargedtothereserve.AstocertainoftheCompany'slargegeneratingunits,costschargeabletothereservearelimitedto$12.5millionsinceoutsideinsuranceiscarriedtocovercostsinexcessofthatamount.ThereservelsestablishedonthebasisofhistoricalexperienceandhasbeenrecognizedinratemakingproceduresbythePUC.AtDecember31,1976andSeptember30,1977thereservebalancewas$13.9millionand$13.8million,respectively.2.RATEFILINGSReferenceismadetoinformationappearingunder"RATEMATTERS".3.FUELCOSTSRECOVERABLEUNDERFUELADJUSTMENTCLAUSESReferenceismadetoNotes(b)and(c)tothe"STATEMENTOFINCOME".42 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)4.COMPENSATINGBALANCESANDSHORT-TERMDEBTShort-termdebtoftheCompanyconsistsofbankloans(generallyborrowedforoneyearattheprimeinterestrateandprepayableatanytimewithoutpenalty)andcommercialpapernotes(generallymaturingwithin30to60days).Inordertoprovideinterimfinancingandback-upfinancingcapabilityforcommercialpapernotes,theCompanyhaslinesofcreditwithvariousbanksthataremaintainedbycompensatingbankbalancerequirements(notlegallyrestrictedastowithdrawal)orthepaymentofcommitmentfees.Informationregardingsuchshort-termdebtandlinesofcreditisasfollows(thousandsofdollars):Short-termdebtoutstandingWeightedaverageshort-termdebtinterestrate..............................Maximumaggregateshort-termdebtoutstandingatanymonthend(a).Averagedailyshort-termdebtoutstanding(a)Aggregateamount.Weightedaverageinterestrate(b).Linesofcredit(c)Maintainedbycompensatingbankbalances...........................Maintainedbypaymentofcommitmentfees...........................Averageannualcompensatingbankbalancerequirement..............Annualcommitmentfees..AsofOecember31,1979$60,01247o/oAsofSeptember30,1977$91,4606.2'lo$129,59855o/o$100,1885.4'lo$143,500$56,500$18,850$313$147,500$52,500$13,300$302$194,578$194,578(a)Duringprecedingtwelvemonths.(b)Calculatedbydividingshort-terminterestexpensefortheperiodbytheaverageaggregatedailyshort-termdebtoutstandingduringtheperiod.(c)UseoftheselinesofcreditwasrestrictedatDecember31,1976andSeptember30,1977totheextentof$4millionbyshort-termbankloanstocertaincompaniesinvolvedinfuelsupplyoperations.5.DEPRECIATIONProvisionsfordepreciationasapercentoftheaverageoriginalcostofdepreciablepropertyhaveapproximated3.3/efor1972,3.4/ofor1973,3.3/efor1974and1975and3.2/ofor1976andthetwelvemonthsendedSeptember30,1977.Thelowercompositedepreciationratefor1976andthetwelvemonthsendedSeptember30,1977reflectschangesmadeasofJanuary1,1976inestimatedusefullivesofcertainfacilitiesinaccordancewiththePUC'sAugust1976rateorder.Noprovisionisbeingmadefordepreciationoramortizationofintangiblesofapproximately$1.3millionincludedinUtilityPlant.43 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)6.CAPITALSTOCKCommonStock-noparconsistsof50,000,000authorizedsharesofwhich30,803,318shareswereoutstandingatDecember31,1976and34,599,105shareswereoutstandingatSeptember30,1977.CommonStockof$575,458,000atSeptember30,1977includes$640,000cashinstallmentsreceivedunderadividendreinvestmentplanasconsiderationfor27,249sharesofCommonStockwhichwereissuedinOctober1977.PreferredStock($100par,cumulative)andPreferenceStock(nopar,cumulative)consistedofthefollowing(thousandsofdollars):SharesAmountRedemptionPriceFinalDecember31,September30,September30,AuthorizedOutstanding197619771977PriceYearPreferred4go/o............Series..........3.35'/o......4.40'/o~,~~..4.60'/o......7.40'/o......8.60'/o......900'/o......9.24o/o......Total.....629,9365,000,000530,18941,783228,77363,000400,000222,37077,630750,0004,17822,8786,30040,00022,2377,76375,0004,17822,8786,30040,00022,2377,76375,000$231,375$231,375$53,019$53,019103.50102.00103.00112.00110.00110.00115.00103.50102.00103.00100.001998101.001990101.001990101.001991$110.00$110.00Preference......5,000,000$8.00...........$8.40...........$8.70...........$9.25...........$11.00.........$13.00.........Total.....350,000400,000400,000160,000500,000250,000$35,00040,00040,00020,00050,00025,000$35,00040,00040,00016,00050,00025,000$210,000$206,000-$105.50110.00109.00109.90111.70$101.001987101.001986101.001984100.001981100.001995100.001994ThePreferenceStockmaynotberefundedthroughcertainrefundingoperationspriortothefollowingdates:$8.70series,7/1/78;$13.00series,10/1/84;$11.00series,7/1/85.Otherwise,thePreferredandPreferenceStockmayberedeemed,inwholeorinpart,attheoptionoftheCompanyatredemptionpricesrangingbetweentheSeptember30,1977priceandthefinalpriceshownabove,withtheexceptionthatthePreferenceStock,$9.25Series,isnotredeemablebytheCompanyotherthanthroughthesinkingfundrequirementorvoluntaryliquidation.44 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)TheliquidationpricesofallissuesofPreferredStock,whicharepayableonaparitywitheachotherandinpreferencetothePreferenceStockandtheCommonStock,areasfollows:involuntaryliquidation$100ashare;voluntaryliquidation$100ashareforthe4'~/oPreferredStockandtheredemptionpriceineffectatthetimefortheSeriesPreferredStock;plusineachcaseanyunpaiddividends.TheliquidationpricesofPreferenceStock,whicharepayableaftersatisfactionofthepreferentialrightsofPreferredStockandinpreferencetotheCommonStock,areasfollows:involuntaryliquidation$100ashare;voluntaryliquidationtheredemptionpriceineffectatthetime,withtheexceptionthatthevoluntaryliquidationpriceofthePreferenceStock,$9.25Series,is$110ashare;plusineachcaseanyunpaiddividends.Eachofthefollowingseriesofstockcontainssinkingfundprovisionsdesignedtoretiretheseriesataredemptionpriceof$100ashareplusaccruedandunpaiddividendstothedateofsuchredemption:PreferredStock740/oSeries.9.24/sSeries(a)................~.......PreferenceStock$9.25Series(b).........................$11.00Series(a).......................$13.00Series(a).......................SharestobeRedeemedAnnually16,00030,00040,00025,00012,500RedemptionPeriodJuly1,1979-July1,2003July1,1981-July1,2005Jan.1,1977-Jan.1,1981July1,1981-July1,2000Oct.1,1980-Oct.1,1999(a)TheCompanyhastherighttoredeemoneachsinkingfundredemptiondateadditionalsharesuptothenumberofsharesofthisSeriesrequiredtoberedeemedannually.(b)InJanuary1977,theCompanyredeemed40,000sharesofthePreferenceStock,$9.25Series.Capitalstockexpenserepresentscommissionsandexpensesincurredinconnectionwiththeissuanceandsaleofcapitalstock.OfthecapitalstockexpensebalanceatSeptember30,1977,approximately$3.0millionapplicabletothepreferredandpreferencestockserieswhicharetoberedeemedthroughsinkingfundprovisionswillbeamortizedtoEarningsReinvestedastherespectiveseriesofstockareredeemed.Noamortizationplanisineffectforcapitalstockexpenseapplicabletootherissuesofcapitalstock.45 Nq PENNSYLVANIAPOWER&LIGHTCOMPANYJuly1972.......October1972..........................August1973......................November1973.July1974e~~~~~~~~~~~~~~~~~~~~~~~~October1974April1975.August1975.September1975..1975..559567,93575,000April1976.June1976.October1976197614,26867,040NOTESTOFINANCIALSTATEMENTS-(Continued)SalesofcapitalstocksinceJanuary1,1972areasfollows(sharesandamountsinthousands):ClassSharesAmountPreference,$8.00Series350$35,000Common2,00046,9407.40/0SeriesPreferred40040,000Common2,00040,900Common2,20035,156Preference,$13.00Series25025,000Common3,00051,450Preference,$11.00Series50050,000Preference,$9.25Series20020,000Common-dividendreinvestmentandemployeemonthlyinvestmentplans301Common3,5009.24/oSeriesPreferred750Common-employeestockownershipplan35755Common-dividendreinvestmentplan716Common3,200Common-dividendreinvestmentplan59613,234OnOctober14,1977,theCompanyissued$2,528,000(107,573shares)ofCommonStocktotheTrusteeoftheCompany'sEmployeeStockOwnershipPlan.OnOctober19,1977,theCompanysold500,000shares($50million)of8/oSeriesPreferredStock($100par)tothreeinstitutionalinvestors.Thetermsofthe8/oSeriesPreferredStockincludeasinkingfundprovisiondesignedtoretire25,000shares($2.5million)ofthestockannuallyduringtheyears1983through2002.7.DIVIDENDRESTRICTIONSTheCompany'scharterandmortgageindenturesrestrictthepaymentofcashdividendsonCommonStockundercertainconditions.Underthecharterprovisions,whicharethemorelimiting,norestrictionsareeffectiveonthepaymentofsuchdividendsoutofcurrentearnings.Theamountofearningsreinvestedfreeofrestrictionsunderthecharterwas$193.4millionatDecember31,1976and$269.5millionatSeptember30,1977,aftergivingeffectto(1)theissueof$2,528,000ofCommonStockinOctober1977,(2)thesaleof$50,000,000of8/oSeriesPreferredStockinOctober1977and(3)thesaleoftheBonds.46 PENNSYLVANIAPOWER8aLIGHTCOMPANYNOTESTOFINANClALSTATEMENTS-(Continued)8.LONG-TERMDEBTLong-termdebtoutstandingconsistedofthefollowing(thousandsofdollars):December31,September30,19781977$1,165,500$1,145,000Firstmortgagebonds..Notes:7'/odue1980.Other.Unamortized(discount)andpremium-net....Total..Lessamountduewithinoneyear....................Totallong-termdebt.20,000550(4,056)1,181,99420,675$1,161,31920,000430(3,898)1,161,5323,676$1,157,856FirstmortgagebondsconsistedofthefollowingseriesatDecember31,1976andSeptember30,1977(thousandsofdollars):Series2s/io/o3Vso/o2s/4o/o3%o/o10'!s'/o3V2o/o3%o/o4%o/o4%o/o5%o/o6s/4o/oOutstandingDue197819771977$20,00019783,000$3,000'198037,00037,00019827,5007,5001982100,000100,000198325,00025,000198525,00025,000199130,00030,000199430,00030,000199630,00030,000199730,00030,000SeriesDue7o/o19998t/so/o19999o/o20007/4/o20017%o/o20027Vso/o20039t/4o/o2004974o/o20059/4'/o20058'/4'lo2006(a)1978$40,00040,00050,00060,00075,00080,00080,000125,000100,000150,00028,0001977$40,00040,00050,00060,00075,00080,00080,000125,000100,000150,00027,500Outstanding(a)PollutionControlSeriesAdue1977-2003,4Vs/oto5%/o.Theamountoflong-termdebtmaturingineachcalendaryearthrough1982is(thousandsofdollars):197719781979198019811982$20,762$3,686$574$57,568$553$108,006Themaximumaggregateannualsinkingfundrequirementsthrough1982oftheoutstanding.mortgagebondsare(thousandsofdollars):197719781979198019811982$1,575$2,740.$3,265$3,050$3,050$4,450Lesserrequirementswillapplyfortheyears1978-1982iflong-termdebtis50/oorlessofnetproperty.TheCompanyhastherighttomeetalloftheserequirementswithpropertyadditionsorbonds.SubstantiallyallutilityplantissubjecttotheliensoftheCompany'smortgages.47 lfEg/ PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)9.HYDROELECTRICPROJECTSReferenceismadetotheinformationappearingunder"BUSINESS-HydroelectricProjects".10.TAXESIncometaxexpenseisrecordedontheStatementofIncomeasfollows(thousandsofdollars):197219731974197519761977(a)OperatingExpensesProvisionFederal;........State............$12,5825,520$16,4546,207\$12,554$22,5473,8588,221$6566,766$22,03013,88018,10222,66116,41230,7687,42235,910DeferredFederal................~....2,176State........................6532,8294,5571,18015,9913,2715,73719,2622,952590i3,5427,1851,5608,9761,9528,74510,928InvestmenttaxcreditsDeferred................~..Amortizationofdefer-ments...................7,3497,2334,75314,46529,49640,887(2,194)(1,688)(1,216)(1,477)(1,835)(2,380)5,1555,5453,53712,98827,66138,50726,08633,94339,21147,29843,82885,345OtherIncomeandDeductionsReductioninprovisionFederal.....................State........................Deferredinvestmenttaxcredits.........................(263)(71)(46)(45)(4,156)(920)(9,164)(2,037)(11,859)(2,598)(11,288)(2,619)(672)(334)Totalincometaxexpense.........$25,752FederalandStateIncomeTaxesPayable(Credit)........$17,768(91)(5,076)(11,201)(14,457)(14,579)$33,852$34,135(b)$36,097$29,371$70,766$22,570$11,336$19,567$(7,035)$22,003(a)TwelvemonthsendedSeptember30.(b)Excludes$4,831,000deferredincometaxesrelatedtoNonrecurringCredit.InvestmenttaxcreditseliminatedtheCompany'sFederalincometaxliabilityfor1976andresultedinacredittotheprovisionforincometaxesofapproximately$5.9millionrelatedtoacarrybackofinvestmenttaxcreditstoprioryears.Totalincometaxexpensefor1976hasbeencreditedbyapproximately$5.0millionrepresentingadjustmentsofprioryears'axliabilities.Theprincipaladjustment,relatedtoadoptionofthemodifiedhalf-yearconventionmethodofcomputingtax48 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANClALSTATEMENTS-(Continued)$3,715$4,54014,009(b)829(3,726)1,5381,899$19,262$3,542$6,4252,688(189)2,004$6,4632,391(1,041)932$8,7452,680$5,73711279$10,928$2,829depreciationintheCompany's1975Federalincometaxreturn,reducedtotalincometaxexpensebyapproximately$2.8million.Deferredincometaxesresultfromthefollowingitems(thousandsofdollars):197219731974197519761977(a)Portionoftaxdepreciationundertheclasslifedepreciationsystem.$1,550$3,057Recoverablefuelcosts....................Forcedoutagereserve....................Other(a)TwelvemonthsendedSeptember30.(b)Excludes$4,831,000deferredincometaxesrelatedtoNonrecurringCredit.ThecombinedFederalandStatecorporateincometaxratesfortheCompany,aftergivingeffecttothedeductibilityoftheStateincometaxexpense,rangedfrom52.9%to54.0%duringtheperiodsshownontheStatementofIncome.IncometaxexpensedifferedfromtheamountcomputedbyapplyingthecombinedFederalandStatecorporateincometaxratestopre-taxincomeasfollows(thousandsofdollars):197219731974197519761977(a)Netincome..$57,921$66,912$87,479$97,541$112,111$145,815Incometaxexpense..............................25,75233,85238,96636,09729,37170,766Pre-taxincome..~..$83,673$100,764$126,445$133,638$141,482$216,581Indicatedincometaxexpenseatcom-binedtaxrates.$45,166$54,131$66,940$70,748$74,901$114,658Reductionsdueto:Allowanceforfundsusedduringconstruction.........7,9068,04110,97619,37923,92526,426Taxdeductioninexcessofbookexpense:Depreciation............................6,1457,5318,7999,13115,06713,271Taxandpensioncost..............2,5542,6872,4912,9983,3543,623Other-net.2,8092,0205,7083,1433,184572Total.19,41420,27927,97434,65145,53043,892Incometaxexpense..........................~...$25,752$33,852$38,966$36,097$29,371$70,766Effectiveincometaxrates......................30.8%33.6%30.8%27.0%20.8%32.7%(a)TwelvemonthsendedSeptember30.49 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)lTaxesotherthanincometaxeschargedto1972Stategrossreceipts.............................$15,194Statecapitalstock.4,428Stateutilityrealestate..........................3,611Socialsecurityandother...................~.2,425Total$25,658operatingexpensewere(thousandsofdollars):197319741975197B1977(a)$16,867$20,564$23,756$28,320$32,4155,4036,2637,2848,8609,6094,6875,2585,9808,05210,7003,0483,4863,6494,2945,250$30,005$35,571$40,669$49,526$57,974(a)TwelvemonthsendedSeptember30.11.RETIREMENTPLANObligationsoftheCompany'sRetirementPlanarecurrentlyfundedthroughaTrustFund.AtJune30,1976,thedateofthePlan'smostrecentactuarialexamination,theFund'sassetsatmarketwere$92.3millionandatcostwere$94.5million.Pensioncostswere(thousandsofdollars):1972197319741975197B1977(a)$6,733$6,761$6,661$8,830$9,755$10,936(a)TwelvemonthsendedSeptember30.BasedontheFund'sassetsatcost,atJune30,1976theactuariallycomputedunfundedpastservicecostwas$28.6million.AsofthesamedatevestedbenefitsexceededthecostbasisoftheFund'sassetsby$20.0million.PlanamendmentseffectiveasofJuly1,1976,subjecttoInternalRevenueServiceapprovai,provideforincreasedbenefits,reducedemployeecontributionsandcertainotherminorchangestocomplywiththeEmployeeRetirementIncomeSecurityActof1974.Theseamendmentsincreasedtheunfundedpastservicecostandvestedbenefitsbyabout$3.6million,andtheCompany'sannualcostbyabout$1.0millioncommencingin1977,includingamortizationoftheincreasedpastservicecostover20years.12.RENTALSANDNONCANCELLABLELEASECOMMITMENTSRentalswerechargedtooperatingexpenseinthefollowingamounts(thousandsofdollars):197219731974197519791977(a)$6,279$7,515$8,911$9,477$10,502$11,002(a)TwelvemonthsendedSeptember30.50
PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)AtSeptember30,1977,theCompanywascommittedforminimumrentalstotaling$113.2millionundernoncancellableleasesexpiringatvariousdatesto1997.Theminimumrentalsareasfollows~(thousandsofdollars):After197719781979198919811982-19881987-19911992-19981998$6,586$8,083$7,754$7,554$7,208$28,188$24,681$21,156$2,039Theseminimumrentalcommitmentsareapplicabletothefollowingcategoriesofproperty:oilstoragefacilities,$54.7million;railroadcoalcars,$27.0million;combustionturbinegeneratingequipment,$16.6million;computerequipment,$11.1million;andconstructioncranes,$3.8million.GenerallytheleasescontainrenewaloptionsandobligatetheCompanytopaymaintenance,insuranceandotherrelatedcosts.ThepresentvalueoffutureminimumleasecommitmentsatSeptember30,1977applicabletononcapitalizedfinancingleases(asdefinedbytheSecuritiesandExchangeCommission)waslessthan5/eoftheCompany'scapitalization,andtheimpactonnetincomefortheyears1975,1976andthetwelvemonthsendedSeptember30,1977ifallnoncapitalizedfinancingleaseswerecapitalizedandamortizedonastraight-linebasiswithinterestaccruedonthebasisoftheoutstandingleaseliability,islessthan3/eoftheaveragenetincomeofthelatestthreeyears.13.ACQUISITIONOnDecember31,1976theCompanyacquiredalloftheoutstandingcapitalstockofHersheyElectricCompany(HEC),anelectricdistributioncompany.TheacquisitioncostofthecapitalstockandtherepaymentofalldebtowedbyHECapproximated$7.9million.14.SALEOF100/oOFSUSQUEHANNAPLANTReferenceismadetoinformationappearingunder"CONSTRUCTIONPROGRAM"regardingagreementsbetweentheCompanyandAlleghenyElectricCooperative,Inc.(Allegheny)forthesaleofa10/eundividedownershipinterestintheCompany'sSusquehannaNuclearUnitsanddepositsreceivedfromAllegheny(amountingto$78.8millionatSeptember30,1977)whicharesubjecttorefundifnecessaryregulatoryapprovalsofthesalearenotreceivedbyMarch16,1978.15.COMMITMENTSANDCONTINGENTLIABILITIESTheCompanyestimatesthatabout$1.51billionwillberequiredtocompleteconstructionprojectsinprogressattheendof1976.Ofthisamount,approximately$1.15billionisrelatedtocompletionoftheCompany'stwonucleargeneratingunitsatSusquehanna.Referenceismadetoadditionalinformationappearingunder"CONSTRUCTIONPROGRAM","BUSINESS-EnvironmentalMatters"and"BUSINESS-FuelSupply(Oil)and(Nuclear)".51 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)Inconnectionwithprovidingforitsfuturebituminouscoalsupply,theCompanyatSeptember30,1977hadguaranteedcapitalandotherobligationsofcertaincoalsuppliers(includingownedcoalcompanies)aggregating$166.5million.See"BUSINESS-FuelSupply(Coal)".16.SUMMARYOFQUARTERLYRESULTSOFOPERATIONS(UNAUDITED)Quarterlyearningscanbeinfluencedbyweather,timingofraterelief,performanceofgene'ratingstations,salestootherutilitiesandotherfactorssuchasthosedescribedunder"MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME".Thefollowingissummaryquarterlydatafortheyears1975and1976andthefirstthreequartersof1977(thousandsofdollars):EarningsPerShareOfCommonStock(a)EarningsApplicableToCommonStockOperatingIncomeNetIncome$29,83326,74230,16834,226$18,22416,67719,46118,6700.670.460.700.85166,269149,281~.....149,580179,01725,18921,28130,42335,218auarterOperatingEndedRevenues1975March31.$150,106$23,673$0.78,June30.128,98422,2480.65September30..........................125,91725,5420.74December31...........................139,12226,0780.701976March31.34,36017,781June30..28,00613,603.September30....................35,24121,282December31(b).................40,72726,0771977March31208,89447,01740,11431,0661.00June30..173,29943,91235,54726,4980.79September30(c)......................174,06748,91334,93625,8880.75(a)Quarterlyearningspersharearebasedontheaveragenumberofsharesoutstandingduringthequarter.(b)Resultsforthefourthquarterof1976includeareductioninincometaxexpenseof$2.4millionduetoincreasedtaxdepreciationapplicabletoMartinsCreekUnitNo.4whichbegantestoperationDecember11,1976anda$2.1millionchargetoexpense(netofincometaxes)toadjusttheamortizationofdeferredfuelcostsfortheyears1970-1975totheactualfueladjustmentrevenuesbilledduringthoseyears.(c)Netincomeforthethirdquarterof1977includesa$6.6million(netofincometaxes)loss($.20pershare)ofasubsidiarycompany.Foradditionalinformationsee"BUSINESS-FuelSupply(Coal)". PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)17.REPLACEMENTCOSTDATA(UNAUDITED)IncompliancewiththerulesoftheSecuritiesandExchangeCommission(SEC),theCompanyhasestimatedcertainreplacementcostinformationforutilityplantinserviceanddepreciation.TheCompanyhasnotincludedreplacementcostdatafor-materialsandsuppliesinventorysincetheamountoftheinventoryisnotsignificant.Replacementcostdatarelatingtofuelinventorieshavenotbeenincludedsincechangesincostlevelsarerecoveredthroughtheoperationoffueladjustmentclauses.Althoughthereplacementcostdatadisclosedhereinhave,intheCompany'sopinion,beenreasonablyestimatedinaccordancewithrulesandinterpretationsofsuchrulespublishedbytheSEC,theCompanybelievesthatinvestorsshouldbeawareoftheimprecisionandlimitationsofthisinformationandofthemanysubjectivejudgmentsrequiredInthereplacementcostestimation.ThereplacementcostinformationisbasedonthehypotheticalassumptionthattheCompanywouldreplaceitsentireproductivecapacityatDecember31,1976,whetherornotthefundstodosowereavailableorsuch"instant"replacementwerephysicallyorlegallypossible.ThisassumptionrequiresthattheCompanycontemplateactionsatDecember31,1976thatordinarilywouldnotbeaddressedallatonetime.Accordingly,theinformationshouldnotbeinterpretedtoindicatethattheCompanyactuallyhaspresentplanstoreplaceitsproductivecapacityorthatactualreplacementwouldorcouldtakeplaceinthemannerassumedinestimatingtheinformation.Inthenormalcourseofbusiness,theCompanywillreplaceitsproductivecapacityoveranextendedperiodoftime.DecisionsconcerningreplacementwillbemadeInlightoftheeconomics,availabilityoffunds,fuelavailability,equipmentavailability,customerdemandandregulatoryrequirementsexistingwhensuchdeterminationsaremadeandcoulddiffersubstantiallyfromtheassumptionsonwhichthedataincludedhereinarebased.Thereplacementcostdatapresentedarenotnecessarilyrepresentativeofthe"currentmarketvalue"ofexistingfacilitiesorofthe"fairvalue"ofutilityplantasthattermisusedinrateproceedingsbeforethePUC.ThereplacementcostinformationpresenteddoesnotreflectalloftheeffectsofinflationontheCompany'scurrentcostsofoperatingthebusiness.TheCompanyhasnotattemptedtoquantifythetotalimpactofinflation,environmentalandothergovernmentalregulations(exceptassetforthbelow)andchangesinothereconomicfactorsonthebusinessbecauseofthemanyunresolvedconceptualproblemsandratemakingconsiderationsinvolvedindoingso.Accordingly,itistheCompany'sviewthatthereplacementcostdatapresentedhereincannotbeusedalonetodeterminethetotaleffectofinflationonreportednetincome.53
PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Concluded)ThecomputedreplacementcostoftheCompany'sutilityplantinserviceandrelateddepreciationexpensewithcomparativehistoricalcostdataareasfollows(millionsofdollars):ComputedReplacementCostUtilityplantinserviceatDecember31,1976Subjecttoreplacementcostdetermination........Land,plantheldforfutureuseandintangiblesatoriginalcost.Totalplantinservice..LessaccumulateddepreciationNetplantinservice............................Depreciationexpensefortheyear1976....................$1,9861122,098459$1,639$62$4,3121124,4241,033$3,391$123Thereplacementcostofcoal-firedandoil-firedsteamstationcapabilitywasdeterminedbytrendingtheconstructioncostofthemostrecentlyinstalledunits(800mwcapabilityrange)andcomputingareplacementcostperkwcapabilityoftheunits.ThiscostperkwwasappliedtotheCompany'srespectivecoal-firedandoil-firedsteamstationcapabilitytodeterminethegrossreplacementcostofsuchfacilities.Theoriginalinstalledcostofhydroelectric,otherpowerproduction,transmission,distribution,andotherfacilitieswastrendedtodeterminereplacementcost.ThetrendindicesutilizedweredeterminedbytheCompanyandarebelievedtobemorerepresentativeofthechangesinconstructioncostsexperiencedbytheCompanythanpublishedindices.~Thereplacementcostofcoal-firedsteamstationswasbasedontheassumptionthatsuchfacilitieswouldbereplacedwithbituminouscoal-firedunits.Accordingly,basedoncurrenttechnology,thegrossreplacementcostofutilityplantatDecember31,1976includesapproximately$500millionwhichtheCompanyestimateswouldhavetobeexpendedtoenablesuchfacilitiestomeetparticulateandsulfurdioxideemissionregulationsexistingatDecember31,1976.TheaccumulateddepreciationrelatedtothereplacementcostofproductivecapacitywasdeterminedbyapplyingthesamepercentagerelationshipthatexistedbetweengrossutilityplantandaccumulateddepreciationbyfunctionalgroupsonahistoricalbasisatDecember31,1976tothecurrentreplacementcostoftheproductivecapacity.Replacementcostdepreciationexpensefortheyear1976wasdeterminedonastraight-linebasisbyapplyingthefunctionalclassdepreciationaccrualratescurrentlyinusetotherespectivefunctionalclassaveragereplacementcostamounts.SuchamounthasbeencalculatedinaccordancewithSECinstructionsanddoesnotrepresentanactualexpense.Withinthecontextofutilityratemakingprocedures,thepurposeofbookdepreciationexpense,asshownontheStatementofIncome,lstoproviderecoveryofinvestedcapitaloverthelifeoftherelatedfacilities,andisnotintendedtoprovideafundequaltotheamountnecessarytoreplacesuchfacilitiesatthecostlevelexistingatthetimeofreplacement.54 PURCHASERSThePurchasersnamedbelowhaveseverallyagreedtopurchasefromtheCompanythefollowingrespectiveprincipalamountsofBonds.PurchaserPrincipalAmountPurchaserPrincipalAmountTotal.$100,000,00055 HRVVVORS'.'"PBASYLVAMA'-'-~PENNSYLVANIAPOWER6UGHTCOMPANYSERVICEAREAPKOSBtiPVAIRSW.VRtWSIlf~A4StACKt4scaaanw*4wsx~hl.p~IlsvsNhISRt;'thamsvaas,,".sssssvowts~sNkSStSSVSSh~g4Nsswwv,'+-ttPENNSYI.VANAskNcsssss8AvlshtKsI~.GENERATINGSTATIONS VI' PARTII.INFORMATIONNOTREQUIREDINPROSPECTUS.Item13.OtherExpensesofIssuanceandDistributionoftheBonds.SecuritiesandExchangeCommissionregistrationfee............................Printingandengraving..FeesandexpensesofTrustee,includingcounselandauthenticationfees................~................Legalfees.Accountingfees..Postage....................................................................................................Ratingagencyfees.BlueSkyfeesandexpenses.RecordingfeesMiscellaneous..Total$20,40065;00030,00027,5005,00020,00022,0004,5002,5003,100$200,000AlloftheaboveexcepttheSecuritiesandExchangeCommissionregistrationfeeareestimated.Item14.RelationshipwithRegistrantofExpertsnamedinStatement.Referenceismadetothecaptions"Experts"and"LegalOpinions"intheProspectus.Item15.IndemnificationofDirectorsandOfficers.ArticleVIIoftheBy-LawsoftheCompanyreadsasfollows:"IndemnificationofDirectors,Officers,Etc.SzcrtoN7.01.DirectorsandOjgcers;ThirdPartyActions.Thecorporationshallindemnifyanydirectororofficerofthecorporationwhowasorisapartyoristhreatenedtobemadeapartytoanythreatened,pendingorcompletedaction,suitorproceeding,whethercivil,criminal,administrativeorinvestigative(otherthananactionbyorintherightofthecorporation)byreasonofthefactthatheisorwasanauthorizedrepresentativeofthecorporation(which,forthepurposesofthisArticle,shallmeanadirector,officer,employeeoragentofthecorporation,orapersonwhoisorwasservingattherequestofthecorporationasadirector,officer,employeeoragentofanothercorporation,partnership,jointventure,trustorotherenterprise)againstexpenses(includingattorneys'ees),judgments,finesandamountspaidinsettlementactuallyandreasonablyincurredbyhiminconnectionwithsuchaction,suitorproceedingifheactedingoodfaithandinamannerhereasonablybelievedtobein,ornotopposedto,thebestinterestsofthecorporation,and,withrespecttoanycriminalactionorproceeding,hadnoreasonablecausetobelievehisconductwasunlawful.Theterminationofanyaction,suitorproceedingbyjudgment,order,settlement,conviction,oruponapleaofnolocontendereoritsequivalent,shallnot,ofitself,createapresumptionthatthepersondidnotactingoodfaithandinamannerwhichhereasonablybelievedtobein,ornotopposedto,thebestinterestsofthecorporation,and,withrespecttoanycriminalactionorproceeding,hadreasonablecausetobelievethathisconductwasunlawful.SEGTIoN7.02.DirectorsandOjfieers;DerivativeActions.Thecorporationshallindemnifyanydirectororofficerofthccorporationwhowasorisapartyoristhreatenedtobemadeapartytoanythreatened,pendingorcompletedactionorsuitbyorintherightofthecorporationtoprocureajudgmentinitsfavorbyreasonofthefactthatheisorwasanauthorizedrepresentativeofthecorporation,againstexpcnscs(includingattorneys'ees)actuallyandreasonablyincurredbyhimin'onnectionwiththedefenseorsettlementofsuchactionorsuitifheactedingoodfaithandina gt4 mannerhereasonablybelievedtobein,ornotopposedto,thebestinterestsofthecorporationandexceptthatnoindemnificationshallbemadeinrespectofanyclaim,issueormatterastowhichsuchpersonshallhavebeenadjudgedtobeliablefornegligenceormisconductintheperformanceofhisdutytothecorporationunlessandonlytotheextentthatthecourtofcommonpleasofthecountyinwhichtheregisteredofficeofthecorporationislocatedorthecourtinwhichsuchactionorsuitwasbroughtshalldetermineuponapplicationthat,despitetheadjudicationofliabilitybutinviewofallthecircumstancesofthecase,suchpersonisfairlyandreasonablyentitledtoindemnityforsuchexpenseswhichthecourtofcommonpleasorsuchothercourtshalldeemproper.SECTIoN7.03.EmployeesandAgents.Totheextentthatanauthorizedrepresentativeofthecorporationwhoneitherwasnorisadirectororofficerofthecorporationhasbeensuccessfulonthemeritsorotherwiseindefenseofanyaction,suitorproceedingreferredtoinSections7.01and7.02ofthisArticleorindefenseofanyclaim,issueormattertherein,heshallbeindemnifiedbythecorporationagainstexpenses(includingattorneys'ees)actuallyandreasonablyincurredbyhiminconnectiontherewith.Suchanauthorizedrepresentativemay,atthediscretionofthecorporation,beindemnifiedbythecorporationinanyothercircumstancestoanyextentifthecorporationwouldberequiredbySections7.01or7.02ofthisArticletoindemnifysuchpersoninsuchcircumstancestosuchextentifhewereorhadbeenadirectororofficerofthecorporation.SEGTIoN7.04.ProcedureforEgecringIndemnification.IndemnificationunderSections7.01,7.02or7.03ofthis'Articleshallbemadewhenorderedbycourt(inwhichcasetheexpenses,includingattorneys'ees,oftheauthorizedrepresentativeinenforcingsuchrightofindemnificationshallbeaddedtoandbeincludedinthefinaljudgmentagainstthecorporation)andmaybemadeinaspecificcaseuponadeterminationthatindemnificationoftheauthorizedrepresentativeisrequiredorproperinthecircumstancesbecausehehasmettheapplicablestandardofconductsetforthinSections7.01or7.02ofthisArticle.Suchdeterminationshallbemade:(1)Bytheboardofdirectorsbyamajorityvoteofaquorumconsistingofdirectorswhowerenotpartiestosuchaction,suitorproceeding,or(2)Ifsuchaquorumisnotobtainable,or,evenifobtainableamajorityvoteofaquorumofdisinteresteddirectorssodirect,byindependentlegalcounselinawrittenopinion,or(3)Bytheshareholders.SacTtoN7.05.AdvancingExpenses.Expenses(includingattorneys'ees)incurredindefendingacivilorcriminalaction,suitorproceedingshallbepaidbythecorporationinadvanceofthefinaldispositionofsuchaction,suitorproceeding,uponreceiptofanundertakingbyoronbehalfofadirectororofficertorepaysuchamountunlessitshallultimatelybedeterminedthatheisentitledtobeindemnifiedbythecorporationasrequiredinthisArticleorasauthorizedbylawandmaybepaidbythecorporationinadvanceonbehalfofanyotherauthorizedrepresentativewhenauthorizedbytheboardofdirectorsuponreceiptofasimilarundertaking.SEGTIQN7.06.ScopeofArticle.Eachpersonwhoshallactasanauthorizedrepresentativeofthecorporation,shallbedeemedtobedoingsoinrelianceuponsuchrightsofindemnificationasareprovidedinthisArticle.TheindemnificationprovidedbythisArticleshallnotbedeemedexclusiveofanyotherrightstowhichthoseseekingindemnificationmaybeentitledunderanyagreement,voteofshareholdersordisinteresteddirectors,statuteorotherwise,bothastoactioninhisofficialcapacityandastoactioninanothercapacitywhileholdingsuchofficeorposition,andshallcontinueastoapersonwhohasceasedtobeanauthorizedrepresentativeofthecorporationandshallinuretothebenefitoftheheirs,executorsandadministratorsofsuchaperson."DirectorsandofficersoftheCompanymayalsobeindemnifiedincertaincircumstancespursuanttothestatutoryprovisionsofgeneralapplicationcontainedinthePennsylvaniaBusinessCorporationLaw. ]t InsofarasindemnificationforliabilitiesarisingundertheSecuritiesActof1933maybepermittedtodirectors,officersandcontrollingpersonsoftheCompanypursuanttotheforegoingprovisions,orotherwise,theCompanyhasbeeninformedthatintheopinionoftheSecuritiesandExchangeCommissionsuchindemnificationisagainstpublicpolicyasexpressedintheActandis,therefore,unenforc'cable.Intheeventthataclaimforindemnificationagainstsuchliabilities(otherthanthepaymentbytheCompanyofexpensesincurredorpaidbyadirector,officerorcontrollingpersonoftheregistrantinthesuccessfuldefenseofanyaction,suitorproceeding)isassertedbysuchdirector,officerorcontrollingpersoninconnectionwiththesecuritiesbeingregistered,theCompanywill,unlessintheopinionofitscounselthematterhasbeensettledbycontrollingprecedent,submittoacourtofappropriatejurisdictionthequestionwhethersuchindemnificationbyitisagainstpublicpolicyasexpressedintheActandwillbegovernedbythefinaladjudicationofsuchissue.ReferenceisalsomadetotheFormofBid,includingTermsofPurchase,filedasExhibit1(b)hereto,whichcontainsprovisionsforindemnificationoftheCompanyanditsdirectorsandofficersbytheseveralPurchasers.againstcertaincivilliabilitiesforinformationfurnishedbythePurchasers..TheCompanypresentlyhasaninsurancepolicywhich,amongotherthings,includesliabilityinsurancecoverageforofficersanddirectors,witha$20,000deductibleclause,underwhichofficersanddirectorsarecoveredagainstany"loss"byreasonofpaymentofdamages,judgments,settlementsandcosts,aswellaschargesandexpensesincurredinthedefenseofactions,suitsorproceedings."Loss"isspecificallydefinedtoexcludefinesandpenalties,'swellasmattersdeemeduninsurableunderthelawpursuanttowhichtheinsurancepolicyshallbeconstrued.Thepolicyalsocontainsotherspecificexclusions,includingillegallyobtainedpersonalprofitoradvantage,anddishonesty.ThepolicyalsoprovidesforreimbursementtotheCompanyforlossincurredbyhavingindemnifiedofficersordirectorsasauthorizedbystatestatute,companyby-laws,oranyotheragreement.Item16.TreatmentofProceedsfromStocktobcRegistered.Inapplicable.Item17.OtherDocumentsFiledasaPartofrheRegistrationSrafement.(a)StatementsofeligibilityandqualificationofpersonsdesignatedtoactastrusteeunderanindenturetobequalifiedundertheTrustIndentureActof1939.StatementonFormT-1ofMorganGuarantyTrustCompanyofNewYork.(b)Exhibits.IncorporationbyReferenceExhibitNo.1(a)1(b)l(c)2(a)-1-PublicInvitationforBidstogetherwithState-mentofTerms&,ConditionsrelatingtoBids-FormofBid,includingTermsofPurchase-FormofAgreementAmongPurchasers(TobefiledbyPost-EffectiveAmendment)-FormofFirstMortgageBond,due2007PreviousFilingPreviousExhibitDesignation2(a)-2-CopyofRestatedArticlesofIncorporation,asamended IYg~l1 IncorporationbyReferenceExhibitNo.2(a)-32(a)-42(a)-5-CopyofBy-laws-MortgageandDeedofTrust,datedasofOctoberI,1945,betweentheCompanyandGuarantyTrustCompanyofNewYork(nowMorganGuarantyTrustCompanyofNewYork),asTrustee-Supplement,datedasofJulyI,1947,tosaidMortgageandDeedofTrustPreviousFilingRegistrationStatement(No.2-58290)RegistrationStatement(No.2;5872)PreviousExhibitDeslgnatton2(a)-37(c)2(a)-6-Supplement,datedasofDecemberI,1948,tosaidMortgageandDeedofTrust2(a)-7-Supplement,datedasofFebruaryI,1950,tosaidMortgageandDeedofTrust'2(a)-8-Supplement,datedasofMarchI,1953,tosaidMortgageandDeedofTrust.2(a)-9'2(a)-10-Supplement,datedJulyI,1954,tosaidMort-gageandDeedofTrust-Supplement,datedasofAugustI,1955,tosaidMortgageandDeedofTrust~RegistrationStatement(No.2-19255)2(b)-5'2(a)-112(a)-122(a)-13-Supplement,datedasofDecemberI,1961,tosaidMortgageandDeedofTrust-Supplement,datedasofMarchI,1964,tosaidMortgageandDeedofTrust-Supplement,datedasofJuneI,1966,tosaidMortgageandDeedofTrustRegistrationStatement(No.2-19255)2(b)-72(a)-14-Supplement,datedasofNovemberI,1967,tosaidMortgageandDeedofTrust2(a)-15-Supplement,datedasofDecemberI,1967,tosaidMortgageandDeedofTrust2(a)-16-Supplement,datedasofJanuaryI,1969,tosaidMortgageandDeedofTrust2(a)-17-Supplement,datedasofJuneI,1969,tosaidMortgageandDeedofTrust2(a)-18-Supplement,datedasofMarchI,1970,tosaidMortgageandDeedofTrust2(a)-19-Supplement,datedasofFebruaryI,1971,tosaidMortgageandDeedofTrust2(a)-20-Supplement,datedasofFebruaryI,1972,tosaidMortgageandDeedofTrust w~lllNlty'l*epf11xk IncorporationbyReferenceExhibitNo.2(a)-21-Supplement,datedasofJanuary1,1973,tosaidMortgageandDeedofTrustPreviousFilingPreviousExhibitDesignation2(a)-22l-Supplement,datedasofMay1,1973,tosaidMortgageandDeedofTrust2(a)-23-Supplement,datedasofApril1,1974,tosaidMortgage.andDeedofTrust2(a)-24-Supplement,datedasofOctober1,1974,tosaidMortgageandDeedofTrust2(a)-25-Supplement,datedasofMay1,1975,tosaidMortgageandDeedofTrust2(a)-262(a)-272(a)-282(a)-29'2(a)-30,'2(a)-310(a)-322(a)-33-Supplement,datedasofNovember1,1975,tosaidMortgageandDeedofTrust-Supplement,datedasofDecember1,1976,tosaidMortgageandDeedofTrust-ProposedSupplement,tobedatedasofDecember1,1977,tosaidMortgageandDeedofTrust-MortgageandDeedofTrust,datedasof.February15,1937,betweenTheScrantonElec-tricCompany(towhichcompanytheCompanyissuccessorbymerger)andChemicalBank&TrustCompany(nowChemicalBank)andHowardB.Smith(P.J.Gilkeson,successor),asTrustees-Supplement,datedasofNovember1,1946,tosaidMortgageandDeedofTrust-Supplement,datedasofApril1,1948,tosaidMortgageandDeedofTrust-Supplement,datedasofMay15,1952,tosaidMortgageandDeedofTrust-Supplement,datedasofSeptember1,1952,tosaidMortgage'andDeedofTrustRegistrationStatement(No.2-54831)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-6289)Form1-MD,RegistrationStatement(No.2-6289)2(a)-262(a)-26DB-12(a)-34-Supplement,datedasofJanuary31,1956,tosaidMortgageandDeedofTrust2(a)-352(a)-362(a)-37-Supplement,datedJanuary31,1956,tosaidMortgageandDeedofTrust-InstrumentprovidingforresignationofIndivid-ualTrusteeandappointmentofsuccessorIndi-vidualTrusteeundersaidMortgageandDeedofTrust-InstrumentprovidingforresignationofIndivid-ualTrusteeandappointmentofsuccessorIndi-vidualTrusteeundersaidMortgageandDeedofTrustRegistrationStatement(No.2-19255)2(d)-6 IncorporationbyReferenceExhibitNo.2(a)-382(a)-392(a)-402(a)-412(a)-423(a)3(b)3(c)4(a)4(b)S(a)5(b)5(c)5(c)-1'5(c)-25(d)-InstrumentprovidingforresignationofIndivid-ualTrusteeandappointmentofsuccessorIndi-vidualTrusteeundersaidMortgageandDeedofTrust-LoanAgreementdatedFebruary9,1973,be-tweentheCompanyandTheChaseManhattanBank,N.A.-PreferredStockPurchaseAgreement,datedJuly11,1973,betweentheCompanyandThePrudentialInsuranceCompanyofAmerica-PreferenceStockPurchaseAgreement,datedSeptember22,1975,betweentheCompanyandAlcoStandardCorporation-CompositeConformedCopyofPreferredStockPurchaseAgreement,datedOctober11,1977,betweentheCompanyandthepurchasersnamedtherein-OpinionofEdwardM.Nagel,Esq.,withrespect'olegalityofsecuritiesbeingregisteredhere-under-OpinionofMessrs.Reid&Priestwithrespecttolegalityofsecuritiesbeingregisteredhereunder-ConsentofPaulWeirCompanyIncorporated-ArticleVIIoftheCompany'sBy-Laws,relatingtoindemnificationofdirectorsandofficers,issetforthinItem15,towhichreferenceisherebymade-CopyofMemorandumofExcessLiabilityIn-surance,datedDecember31,1972,CoveringExcessPublicLiability&PropertyDamage,includingErrorsandOmissions,EmployeeBen-efitsandDirectorsandOfficersLiabthty-CopyofCoalSalesAgreement,datedJanuary1,1972,betweentheCompanyandGreenwichCollieriesCompany-CopyofInterconnectionAgreement,datedFebruary23,1965,betweenPublicServiceElectric&GasCompanyandtheCompany-CopyofInterconnectionAgreement,datedFebruary19,1965,betweenPhiladelphiaElec-tricCompanyandtheCompany-CopyofSupplemen'talAgreement,datedJan-uary27,1967,tosaidInterconnectionAgree-ment-CopyofSupplementalAgreement,datedOcto-ber20,f969,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedApril9,1974,betweenNewYorkPowerPoolGroupandPennsylvania-NewJersey-MarylandGroupPreviousFilingRegistrationStatement(No.2-58290)Form8-K,July1973(DocketNo.1-905)Form8-K,August1973(DocketNo.1-905)Form8-K,September1975(DocketNo.1-905)RegistrationStatement(No.2-51907)RegistrationStatement(No.2-42777)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-35654)RegistrationStatement'No.2-51907)PreviousExhibitDesignation2(a)-37AA4(b)5(b)13(a)13(b)13(b)-15(c)-25(e) IncorporationbyReferenceExhibitNo.5(e)5(e)-15(e)-25(e)-35(e)-45(e)-55(f)'5(f)-15(f)-25(g)5(h)5(i)5(j)5(k)-CopyofInterconnectionAgreement,datedSeptember26,1956,amongPublicServiceElectric&GasCompany,PhiladelphiaElectricCompany,theCompany,BaltimoreGas&ElectricCompany,PennsylvaniaElectricCom-pany,MetropolitanEdisonCompany,NewJerseyPower&LightCompanyandJerseyCentralPower&LightCompany-CopyofSupplementalAgreement,datedJan-uary28,1965,tosaidInterconnectionAgree-ment-CopyofSupplemententitled"AppendixAMe-terLocations",datedJuly28,1972,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedApril1,1974,tosatdInterconnectionAgreement-CopyofSchedule5.03,effectiveforfilingAu-gust1,1974,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedJune15,1977,tosaidInterconnectionAgreement-CopyofConowingoBackwaterAgreement,datedFebruary20,1926,amongPennsylvaniaWater&PowerCompany(towhichcompanytheCompanyissuccessorbymerger),theSusquehannaPowerCompany,theSusque-hannaElectricCompany,andPhiladelphiaElectricCompany-CopyofSupplementalLetterAgreement,datedMarch1,1976,tosaidConowingoBackwaterAgreement-CopyofSupplementalLetterAgreement,datedAugust5,1977,tosaidConowingoBackwaterAgreement-CopyofPowerSupplyContract,datedasofJune1,1955,amongBaltimoreGas&ElectricCompany,theCompany,andSafeHarborWaterPowerCorporation-CopyofAgreementonthe'schedulinganddispatchingofSafeHarborandHoltwoodProj-ects,datedasofJune1,1955,amongSafeHarborWaterPowerCorporation,BaltimoreGas&ElectricCompanyandtheCompany-CopyofTransmissionContract,datedasofJuly20,1960,amongtheCompany,SafeHarborWaterPowerCorporationandBaltimoreGas&ElectricCompany-MemorandumofAgreementregardingKey-stoneElectricGeheratingStation,datedDecember7,1964,betweentheCompanyand'tlanticCityElectricCompanyetal.-KeystoneOperatingAgreement,datedDecem-ber1,1965,betweenPennsylvaniaElectricCompanyandtheCompanyetal.PreviousFiling,RegistrationStatement~(No.2-26170)RegistrationStatement(No.2-51907)RegistrationStatement(No2-51312)RegistrationStatement(No2-52931)RegistrationStatement(No.2-4254)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-14608)RegistrationStatement(No.2-14608)RegistrationStatement(No.2-26170)PreviousExhibitDesignation13(d)-15(f)-25(f)-45(e)-1I-145(g)-113(o)13(I)13(h) IncorporationbyReferenceExhibitNo.5(1)5(m)5(m)-15(n)5(n)-15(o)5(p)-15(p)-25(p)-3'5(p)-45(p)-55(p)-65(p)-75(p)-85(q)5(q)-I5(q)-25(q)-35(tl)-4-MemorandumofOwners'greementRegard-ingConemaughSteamElectricStation,datedAugust1,'1966,betweentheCompanyandAtlanticCityElectricCompanyetal.-ConemaughOperatingAgreement,datedDecember1,1967,betweenPennsylvaniaElec-tricCompanyandtheCompanyetal.-SupplementNo.1,datedJune4,1969,tosaidConemaughOperatingAgreement-CopyofInterconnectionAgreement,datedMay31,1968,betweenPennsylvaniaElectricCom-panyandtheCompany'CopyofAppendixB,Revision2,datedOctober1,1971,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedAu-gust1,1935,betweenLuzerneCountyGas&ElectricCorporation(nowUGICorporation)andtheCompany-CopyofSupplementalAgreement,datedJune1,1960,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedJanuary31,1968,tosaidInterconnectionAgreement-CopyofAmendmenttosaid,SupplementalAgreement,datedFebruary6,1969,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedMarch27,1970,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedOctober10,1972,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedMay1,1973,tosaidInter-connectionAgreement-CopyofSupplementalAgreement,datedDecemberll,1974,tosaidInterconnectionAgreement-CopyofSupplementalAgreementdatedApril22,1975,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedApril26,1965,betweenWestPennPowerCompanyetal.andtheCompanyetal.-CopyofSchedule7.01,issuedMay4,1967,tosaidInterconnectionAgreement-CopyofSchedule1.05,issuedDecember22,1971,tosaidInterconnectionAgreement-CopyofSchedules1.06,5.02,6.02and9.01,datedNovember14,1974,tosaidInter-connectionAgreement--'CopyofSchedule4.03,issuedFebruary',1976,tosaidInterconnectionAgreementPII-8PreviousFilingRegistrationStatement(No.2-30918)RegistrationStatement(No.2-42013)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-33042)RegistrationStatement(No.2-33042)RegistrationStatement(No.2-38149)RegistrationStatement(No.2-46508)RegistrationSt'atement(No.2-49227)RegistrationStatement(No.2-52693)RegistrationStatement(No.2-52931)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-50488)'egistrationStatement(No.2-52693)Regist'rationStatement(No.2-56389)PreviousExhibitDesignation4(j)5(k)-I13(j)\13(j)-I5(k)-25(k)-35(1()-45(1)-55(1)-713(k)'5(m)-25(m)-35(m)-4 -~J<<,<<"I'<<<<l<<1<<'r/<<//<</~<<II<<<<1*1<<<<Ih IncorporationbyReferenceExblbltNo5(q)-5'5(r)5(r)-15(r)-25(s)5(s)-15(s)-25(t).5(t)-15(t)-25(t)-35(t)-45(t)-55(t)-65(t)-75(t)-85(t)-95(t)-105(t)-115'(u)PreviousFilingRegistrationStatement(No.2-57633)'RegistrationStatement(No.2-26170)-CopyofSchedule7.03,datedAugust16,1976,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedSeptember30,1965,betweenTheClevelandElectricIlluminatingCompanyandtheCom-panyetal.-CopyofSchedule8.02,issuedMarch24,1975,;tosaidInterconnectionAgreement-CopyofSchedules1.02,4.02,5.02,6.02,7.02and9.01,datedNovember12,1975tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedSeptember30,1965,betweenVirginiaElectricandPowerCompanyandtheCompanyetal.-CopyofSchedule7.01,issuedJune2Q,1967,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedSeptember1,1976,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedOctober30,1964,betweenMetropolitanEdisonCompanyandtheCompany-CopyofSupplementalAgreement,datedSeptember29,1967,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedMay20,1968,tosaidInterconnectionAgreement-"CopyofSupplementalAgreement,datedOcto-ber4,1968,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,"datedNovember22,1968,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedJune26,1970,tosaidInterconnectionAgreement-CopyofAppendixB,Revision9,datedMay25,1971,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedJune21,1974,tosaidInterconnectionAgreement-CopyofRevisiontoAppendixC,datedSeptember10,1974,tosaidInterconnectionAgreement-CopyofRevisiontoAppendixC,datedOctober30,1974,tosaidInterconnectionAgreement-CopyofRevisiontoRateSchedule,datedApril28,1975,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedApril5,1976,tosaidInterconnectionAgreement-CopyoftheExtraHighVoltageTransmissionSystemAgreement,datedApril27,1967,be-tweentheCompanyandPublicServiceElectric4GasCompany,etal.RegistrationStatement(No.2-52931)RegistrationStatement(No.2-56389)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-30918),RegistrationStatement(No.2-30918)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-33Q42)RegistrationStatement(No.2-38149)RegistrationStatement(No.2-40765)RegistrationStatement(No.2-51907)RegistrationStatement(No.2-52693)RegistrationStatement(No.2-52693)RegistrationStatement(No.2-52931)RegistrationStatement(No.2-56389)RegistrationStatement(No.2-30918)PreviousExblbltDeslgnstion5(m)-513(1)5(n)-25(n)-213(m)4(n)-15(o)-213(n)4(o)-14(o)-24(o)-35(o)-45(o)-65(1)-65(p)-105(p)-115(p)-125(p)-135(p)-114(p) IIfI ExhibitNo.5(u)-15(u)-25(u)-35(u)-45(G)-55(u)-65(u)-75(v)5(w)5(w)-15(x)5(y)5(y)-15(y)-25(y)-35(y)-45(z)S(aa)-CopyofSchedule13.02,issuedMarch26,1969,inconnectionwithsaidAgreement-CopyofSupplementalAgreement,datedOcto-ber17,1969,tosaidAgreement-CopyofOperatingandMaintenanceAgree-ments,datedasofFebruary1,1970,incon-nectionwithsaidAgreement-CopyofSchedules11.04and12.03,issuedJuly16,1971,inconnectionwithsaidAgreement-CopiesofRevisionstoScheduleA,issuedJan-uary1,1975andMay1,1975,tosaidSchedule12.03-CopyofSupplementalAgreement,datedMay17,1972,tosaidAgreement-CopyofSchedules2.03,3.03,4.03,6.02and8.04,issuedJuly29,1976,tosaidAgreement-CopyoftheSusquehanna-Eastern500KVTransmissionSystemAgreement,dateasofApril30,1976,betweentheCompanyandPublicServiceElectricandGasCompany,etal.-CopyofMid-AtlanticAreaCoordinationAgreement,datedApril23,1971,betweentheCompanyandAtlanticCityElectricCompany,etal.-CopyofAgreementonCoordinatedProgramforReductioninEnergyUse,datedApril1,1977,betweentheCompanyandAtlanticCity.ElectricCompany,etal.-Copyof115KVSeward-ConemaughInter-connectionFacilitiesAgreement,datedMarch2,1970,betweenPennsylvaniaElectricCom-panyandtheCompany,etal.-PipelineSystemContract,datedasofJune22,1972,betweentheCompanyandGulfInterstateEngineeringCompany-CopyofAmendment,datedasofNovember1,~1973,tosaidPipelineSystemContract-CopyofAmendment,datedasofJanuary23,1974,tosaidPipelineSystemContract-CopyofAmendment,datedasofJanuary1,1975,tosaidPipelineSystemContract-CopyofAmendment,datedasofJanuary1,1976,tosaidPipelineSystemContract-PollutionControlFacilitiesAgreement,datedasofMay1,1973,betweentheCompanyandtheLehighCountyIndustrialDevelopmentAu-thority-CopyofPetroleumProductSalesAgreementforthesaleofresidualoil,datedasofJanuary1,1975,betweentheCompanyandAmeradaHessCorporationIncorporationbyReferencePreviousFilingRegistrationStatement(No.2-33042)RegistrationStatement(No.2-35654)RegistrationStatement(No.2-38149)PreviousExhibitDesignation5(p)-15(1)-35(p)-4RegistrationStatement(No.2-42013)RegistrationStatement(No.2-54831)RegistrationStatement(No.2-45713)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-57633)5(q)-45(q)-55(q)-55(q)-75(r)RegistrationStatement(No.2-40765)5(r)RegistrationStatement(No.2-38149)5(r)RegistrationStatement(No.2-51907)RegistrationStatement(No.2-51901)RegistrationStatement(No.2-54831)RegistrationStatement(No.2-5290)Form8-K,May1973(DocketNo.1-905)5(u)-15(u)-25(u)-35(t)-4~ARegistrationStatement(No.2-54299).5(y)RegistrationStatement5(u)(No.2-45713) h:s'htI IncorporationbyReferenceExhibitNo.5(bb)5(cc)5(dd)5(dd)-16(a)6(b)-CopyofAgreement,datedasofJanuary1,1977,betweentheCompanyandAsiaticPetro-leumCorporationforthesaleofoil,-CopyofAgreement,datedasofMarch24,1977,betweentheCompanyandSunOilCom-panyofPennsylvania-CopyofParticipationAgreement,datedasofMarch18,1977,betweentheCompanyandAlleghenyElectricCooperative,Inc.-CopyofSecondTerminationAgreement,datedSeptember16,1977,betweentheCompanyandAlleghenyElectricCooperative,Inc.-ComputationofRatioofEarningstoFixedCharges-ActualandProForma-SupplementalComputationofRatioofEarn-ingstoFixedCharges-ActualandProForma-CalculationofAllocationofAllowanceforFundsUsedDuringConstructionAttributabletoFundsProvidedbyCommonStockEquityPreviousFilingRegistrationStatement(No.2-5290)RegistrationStatement(No.2-58290)PreviousExhibitDesignation5(w)5(y) SIGNATURESPursuanttotherequirementsoftheSecuritiesActof1933,theregistranthasdulycausedthisregistrationstatementtobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized,intheCityofAllentown,andCommomvealthofPennsylvania,onthe11thdayofNovember,1977.PENNsYLYANIAPowER&LIGHTCoMPANYBy/s/JACKK.BUsBYJackK.Busby,ChairmanoftheBoardAndChiefExecutiveOllicerPursuanttotherequirementsoftheSecuritiesActof1933,thisregistrationstatementhasbeensignedbelo>vbythefollowingpersonsinthecapacitiesindicatedonthe11thdayofNovember,1977.Signature/s/JAGKK.BvsBYJackK.Busby,ChairmanofthcBoardandChiefExecutive.OIIlccrTitle~PrincipalExecutive,Officer/s/R.R.FoRTUNER.R.Fortune,ExecutiveVicePresident-FinancialPrincipalFinancialandAccountingOScerRALPHR.CRANMER,EDGARL.DESSEN,R.R.FORTUNQHARRYA.JENsEN,W.DEMINGLEwis,JoltNA.NoBI.E,NORMANROBERTSON,JOSEPHT.SIMPSONANDCHARLESH.WATrsIIDirectorsBy/s/JACKK.BUsBYJackK.Busby,Attorney-in-fact 9V4 CONSENTOFINDEPENDENTCERTIFIEDPUBLICACCOUNTANTSPENNSYLVANIAPOWER&LIGHTCOMPANY:WeherebyconsenttotheuseinthisRegistrationStatementofouropiniondatedFebruary3,1977appearingintheProspectuswhichisapartofsuchRegistrationStatement,andtothereferencestousunder"StatementofIncome"and"Experts"insuchProspectus.HASKINs&SELLSNewYork,NewYorkNovember11,1977(TheconsentsofEdwardM.Nagel,Esq.,Messrs.Reid&PriestandPaulWeirCompanyIncorporatedarefiledasExhibits3(a),3(b)and3(c),respectively,totheRegistrationStatement.) IIIt EXHIBIT6(a)PENNSYLVANIAPOWER4LIGHTCOMPANYCOMPUTATIONOFRATIOOFEARNINGSTOFIXEDCHARGESACTUALANDPROFORMA(Thousandsol'ollars)YearEndedDecember31,TwelveMonthsEndedSeptember30,197719721973197419751976ActualAdjust-PromentsFormaFixedcharges,asdefined:Interestonlong-termdebt..............................Interestonshort-termdebt.............................Otherinterestcharges........,...,....,.........,.....Amortizationofdebtdiscountexpenseandprcmium-net..Estimatedinterestcomponentofrentals.......Totalfixedcharges..........................Earnings,asdefined:Netincome..Undistributed(earnings)orlossesofsub-'idiarycompanies......................................;Add(Deduct):Federalincometaxes..............................Stateincometaxes...................................Deferredincometaxes...................:........Chargeequaltoinvestmenttaxcredit,lessamortizauon.................................Incometaxesonotherincomeandde-ductions-net......,..........,..........:--.Totalfixedchargesasabove..................Totalearnings..................................Ratioofearningstofixedcharges.........................Ratioofearningstofixedchargesexcluding$4,162NonrecurringCreditand$4,831,re-lateddeferredincometaxesin1974..................$36,5Q?$43,2Q3$51,149$67,932$79,783$88,6713,846',7909,5626,2287,1345,426991143433880413$10,805(1)$99,476986(2)641241381241'903,7024,9566,0546,354$44,162$53,075$67,149$80,7422562996,4597,565$93672$102374$11,7912997,565$114,165(562)57,92166,350(30)(102)87,44997,4392,1747,804114,285153,619(5,549)7,804148,07012,5825,5202,82916,4546,2075,73712,55422,5473,8588,22124,093(a)3,5426566,7668,74522,03013,88010,928(5,122)(1,120)16,90812,76010,9285,1555,5453,53712,98827,66138,50738,507(334)(91)44,16253,075$127,835$153,2772.892.89(5,076)67,149$193,5642.88(11/01)80,742$214,2782.65(14,457)(14,579)93,672102,37411,791$237,3282.53$326,7593.19(14,579)114,165$326,7592.862.75$57,921$66,912$&7,479$97,541$112,111$145,815$(5,549)$140,266(a)Includes$4,831defeircdincometaxesapplicabletoNonrecurringCredit.Adjustments:(I)Annualinterestrequirementon$100,000,000principalamountofBonds(assumedinterestrate88/2%)........................................Additionalinterestrequirementon$150,000,000principalamountof88/4%ScricsBondsdueDecemberI,2006issuedDecember21,1976..Lessaccruedinterestrequirementon$8,000,000principalamountof2F6%FirstMortgageBondsretiredNovemberI,1976.....Lessaccruedinterestrequirementon$500,000principalamountof45%PolluriionConuolSeriesABondsretiredMayI,1977Lessaccruedinterestrequirementson$20,000,000principalamountof2'/4%FirstMortgageBondsretiredJulyI,1977.............$8,5002,750(19)(13)(413)$10,805(2)Annualintereston$95,000,000principalamountofcommercialpapernotes(assumedinterestrate-6'4%)assumedtobeoutstandingduringthetwclvcmonthsendedSeptember30,1978..............................................$6,412Lessactualinterestoncommercialpapernotesandbankloansoutstandingduringperiod..................(5,426)$986 EXHIBIT6(b)PENNSYLVANIAPOWER4LIGHTCOMPANYSUPPLEMENTALCOMPUTATIONOFRATIOOFEARNINGSTOFIXEDCHARGESACIUALANDPROFORMA(ThousandsofDollars)TwelveMonthsEndedSeptember30,19771972197319741975YearEndedDecember31,1976ActualAdjust-PromentsformaFixedcharges,asdefined:Intcrcstonlong-termdebt..............................Interestonshort-termdebt.............................Otherinterestcharges.....................................Amortizationofdebtdiscount,expenseandpremium-net.Estimatedinterestcotnponentofrentals.......Fixedchargesofownedorcontrolledcom-paniesapplicabletototalenterprise..........Totalfixedcharges..........................$36,5073,84699$43,2034,79011483,702124,9563,8736,310$48,035$59,385$51,149$67,9329,5626,22834338$79,7837,13480$88,6715,426413411906,0546,3542566,4192997,5659,60012,00219,28418,307$76,749$92,744$112,956$120,8812997,565$11,79118,507$132,6720$10,805(1)$99,476986(2)6,412413Earnings,asdefined:Nctincome.Add(Deduct):Federalincometaxes,.......,....,......,.............Stateincometaxes..Deferredincometaxes....................................Chargeequaltoinvestmenttaxcredit,lessamortization..Incometaxesonotherincomeanddeduc-tions-net.Totalfixedchargesasabove..........................Totalearnings....Ratioofearningstofixedcharges.....Ratioofearningstohxedchargesexduding$4,162NonrecurringCreditand$4,831re-lateddeferredincometaxesin1974..................12,5825,5202,82916,4546,2075,73712,55422,5473,8588,22124,093(a)3,5426566,7668,74522,03013,88010,928(5,122)(1,120)16,90812976010,9285,1555,5453,53712,98827,66138,50738,507(334)48,035$131,7082.74(91)59,385$160,1492.70(5,076)76,7498203.1942.63(11,201)92,744$226,3822.44(14,457)(14,579)112,956120,88111,791$254,438$337,4622.252.79(14,579)132,672$337,4622.542.53$57,921$66,912$87,479$97,541$112,111$145,815$(5,549)$140,266(a)Includes$4,831deferredincometaxesapplicabletoNonrecurringCredit.Adjustments:(I)Annualinterestrequirementon$100,000,000principalamountofBonds(assumedinterestrate-85)..................................Additionalinterestrequirementon$150,000,000principalamountof88/0%SeriesBondsdueDecemberI,2006issuedDecember21,1976.Lessaccruedinterestrequirementon$8,000,000principalamouritof2V0%FirstMortgageBondsretiredNovemberI,1976..Lessaccruedinterestrequirementon$500,000principalamountof48/2%PollutionControlSeriesABondsretiredMayI,1977.Lessaccruedinterestrequirementson$20,000,000principalamountof2'/0%FirstMortgageBondsretiredJulyI,1977......(2)Annualintereston$95,000,000principalamountofcommercialpapernotes(assumedinterestrate-6'/0%)assumedtobeoutstandingduringthetwelvemonthsendedSeptember30,1978.Lessactualinterestoncommercialpapernotesandbankloansoutstandingduringperiod..................................................$8,5002,750(19)(13)(413)$10,805$6,412(5,426)$986 EXHIBIT7PENNSYLVANIAPOWER&LIGHTCOMPANYALLOCATIONOFPORTIONOFALLOWANCEFORFUNDSUSEDDURINGCONSTRUCTION(ALLOWANCE)ATIIBUTABLETOFUNDSPROVIDEDBYCOMMONSTOCKEQUITYForPeriodsPriortoJanuary1,1977IncludedintheStatementofIncome(ThousandsofDellars)CapitalizationIncrementalRatios(a)Rate(b)EquivalentAllocationof'ate(c)'llowanceEarningsApplicabletoCommonStockPortionofAllowanceAttributabletoCommonStockEquityasaPercentageofEarningsApplicabletoCommonStockThreemonthsendedDecember31,1976Long-TermDebt.................................PreferredandPreferenceStock..........CommonStockEquity........................51%18314.64%2.37%9.991.803.717.88%$4,1623,1616,516$13,839$26,07725%1976Long-TermDebt,,....,....,...,....PreferredandPreferenceStock....CommonStockEquity..................51%18314.65%2.37%$13,50610.281.8510,5433.7121,1437.93%$45,192$78,74327%1975Long-TermDebt...........................PreferredandPreferenceStock....CommonStockEquity..................51%18314.67%2.38%13.312AO3.568.34%$10,44610,53415,625$36,605$73,03221%1974Long-TermDebt...........................PreferredandPreferenceStock....CommonStockEquity..................1973Long-TennDebt.............................PreferredandPrcferenccStock......CommonStockEquity....................51%183151%18314.11%7.446.99%7.402.10%1.343.807.24%3.56%1.332.997.88%$6,0133,83710,882$20,732$6,7622,5265,679$14,967$67,823$49,72116%11%1972Long-TermDebt.............................PreferredandPreferenceStock......CommonStockEquity....................51%18317.49%8.003.82%1.442.107.36%$7,6022,8664,179$14,647$43,39510%(a)AssumesthatfundsusedtofinanceconstructionduringeachperiodwereprovidedinthesameproportionastheCompany'saveragecapitalizationratiosduringthefiveyearsendedDecember31,1976.(b)Fortheyears1972through1973incrementalratesweredeterminedonthebasisthatthecostoflong-termdebtandpreferredandpreferencestockfinancingwasequivalenttothecostofsecuritiesissuedineachoftheperiods.NoadjustmentwasmadeforincometaxreductionsresultingfrominterestexpenseattributabletotheportionofAllowanceprovidedbylong-termdebt.SinceFebruary1,1974,theCompanyhascomputedtheAllowancerateonan"after-tax"basistobeconsistentwiththetreatmentaccordedthisitemforrate-makingpurposesbythePennsylvaniaPublicUtilityCommission(PUC).Theincrementalratesusedintheabovecomputationfor1974,1975and1976areconsistentwiththeAllowanceratecomputationfiledsemi-annuallywiththePUCwhichwerebasedonsecuritiesissuedinthetwelvemonthsprecedingthesemi-annualcomputation.Forthesamereason,effectiveFebruary1,1974,theincrementalrateforthedebtcomponentwasreducedbytherelatedincometaxreduction.(c)TheequivalentrateforeachperiodiscalculatedbydividingtheamountofAllowancerecordedduringtheperiodbythebalancesoftheconstructionworkinprogressincludingtheaccumulatedAllowance. RegistrationNo.2-485r-rQWASHINGTONsDC20549cg;rsS'Crrr','t.FORMS-7CPI~"',r,fiFpgREGISTRATIONSTATEEhg-/9/8Underr7'0p0'1p@2'gVregsTHESECURITIESACTOF1933SECURITIESANDEXCHANGECOMMISSIONPennsylvaniaPower8LightCompany(Exactnameofregistrantasspecifiedinitscharter)CommonwealthofPennsylvania(Stateorotherjurisdictionofincorporationororganization)23-0959590(I.R.S.EmployerIdentificationNo.)TwoNorthNinthStreet,Allentown,Pennsylvania(Addressofprincipalexecutiveoffices)18101(ZipCode)Registrant'stelephonenumber,includingareacode:215-821-5151R.R.FORTUNE,ExecutiveVicePresident-FinancialTwoNorthNinthStreetAllentown,Pennsylvania18101(Nameandaddressofagentforservice)Copyto:RICHARDM.DICKE,Esq.SimpsonThacher&BartlettOneBatteryParkPlazaNewYork,N.Y.10004Approximatedateofcommencementofproposedsaletothepublic:Assoonaspracticableafter.thisRegistrationStatementbecomeseffective.CALCULATIONOFREGISTRATIONFEETitleofeachclassofsecuritiestoberegisteredCommonStock(withoutnominalorparvalue)..Amounttoberegistered3,000,000shs.Proposedmaximumofferingpriceperunit'22%Proposedmaximumaggregateofferingprico*$67,125,000Amountofregistrationfee$13,425*Forthepurposeofcalculatingtheregistrationfeeonly.ThepriceshownisbaseduponasalepriceontheNewYorkStockExchangeonFebruary16,1978forsecuritiesofthesameclassasthosetobeofferedinaccordancewithRule457(b).TheregistrantherebyamendsthisRegistrationStatementonsuchdateordatesasmaybenecessarytodelayitseffectivedateuntiltheregistrantshallfileafurtheramendmentwhichspecificallystatesthatthisRegistrationStatementshallthereafterbecomeeffectiveinaccord-ancewithSection8(a)oftheSecuritiesActof1933oruntiltheRegistrationStatementshallbecomeeffectiveonsuchdateastheCommission,actingpursuanttosaidSection8(a),maydetermine. PENNSYLVANIAPOWER&LIGHTCOMPANYFormS-7ItemNo.1..2..4..5..8..9..10..1112..CrossReferenceSheetforProspectusHeadingInProspectusCoverPageofProspectusUnderwritingApplicationofProceedsConstructionProgramFinancingConstructionProgramFinancingBusinessElectricStatisticsManagementMapStatementofIncomeStatementofChangesinFinancialPositionStatementofEarningsReinvestedCoverPageofProspectusDescriptionofCommonStockFinancialStatementsOpinionofIndependentCertifiedPublicAccountantsInsideFrontCoverofProspectus*OmittedfromProspectusasItemisinapplicableoranswerisinthenegative.EXPLANATORYNOTETheformofprospectusfiledasapartofthisRegistrationStatementhastwocoverpages,thefirstofwhichmakesprovisionforpresentingtheactualinitialtermsofofferingoftheCommonStockandthesecondofwhichdescribestheformulapursuanttowhichsuchtermswillbedetermined.Prospectusesbearingthefirstformofcoverpage,appropriatelycompleted,willbedistributedonlyinfinalform(i.e.,aftertheRegistrationStatementbecomeseffective);prospectusesbearingthesecondformofcoverpagewillbedistributedonlyinpreliminaryform.TencopiesoftheprospectusintheexactforminwhichitistobeusedaftertheeffectivedateofthisRegistrationStatementwillbefiledwiththeSecuritiesandExchangeCommissionpursuanttoRule424(b).~0cket8+ygyp<<ff'rfole~QfQ@~l<~iFa.Eggggg~~,<~~OCIIPjlf,IIf.. PennsylvaniaPower8LightCompanyCommonStock(withoutnominalorparvalue)3,000,000SharesOutstandingsharesofCommonStockare,andthesharesofCommonStockofferedherebywillbe,listedontheNewYorkandPhiladelphiaStockExchanges.ThereportedlastsalepriceoftheCommonStockontheNewYorkStockExchangeonMarch29,1978was$pershare.lntheopinionofcounselfortheCompany,theCommonStockisexemptfromexistingpersonalpropertytaxesinPennsylvania.THESESECURITIESHAVENOTBEENAPPROVEDORDISAPPROVEDBYTHESECURITIESANDEXCHANGECOMMISSIONNORHASTHECOMMISSIONPASSEDUPONTHEACCURACYORADEQUACYOFTHISPROSPECTUS.ANYREPRESENTATIONToTHECONTRARYISACRIMINALOFFENSE.CPerShareTotal$$PricetoPublicunderwritingDiscountsandCommissions(1)ProceedstoCompany(2)(1)TheCompanyhasagreedtoIndemnifytheseveralUnderwritersagainstcertaincivilliabilities,includingliabilitiesundertheSecuritiesActof1933.(2)BeforedeductionofexpensespayablebytheCompanyestimatedat$150,000.ThesharesofCommonStockareofferedbytheseveralUnderwriterswhen,asandifissuedbytheCompanyandacceptedbytheUnderwritersandsubjecttotheirrighttorejectordersinwholeorlnpart.ItisexpectedthattheCommonStockofferedherebywillbereadyfordeliveryinPhiladelphia,Pennsylvania,onoraboutApril6,1978.TheFirstBostonCorporationDrexelBurnhamLambertIncorporatedBacheHalseyStuartShieldsIncorporatedMerrillLynch,Pierce,Fenner&SmithIncorporatedThedateofthisProspectusisMarch,1978. I44'4'I44414~14~~,4' ~DIOEIIDZZlBECD414411~CJIOcel~D41CIOIDeWWCDCO~6ICel~IDIOClCD4J1IIIECCCO~CCCDIDcCl41CelE~41OI~41In41CnIII41cEECIOcec11IecOl4141COIOCel11CDcelCD41E41IelCO4441ICDIel41cee~D41~DIllE41CDClIOCCelI4141CJCOIDZlCD41Cel~<c~DE.-CCCDcnIel41IecNIelCOCel~IC41IelIDC41IDCOccCOCDO~DCOCIIDIO~ecICC1CelCCelCDC1CelPRELIMINARYPROSPECTUSDATEDFEBRUARY24,1978ePennsylvaniaPower8LightCompanyCOmmOnStOCk(withoutnominalorparvalue)3,000,000SharesOutstandingsharesofCommonStockare,andthesharesofCommonStockofferedherebywillbe,listedontheNewYorkandPhiladelphiaStockExchanges.ThereportedlastsalepriceoftheCommonStockontheNewYorkStockExchangeonFebruary23,1978was$22%pershare.IntheopinionofcounselfortheCompany,theCommonStockisexemptfromexistingpersonalpropertytaxesinPennsylvania.THESESECURITIESHAVENOTBEENAPPROVEDORDISAPPROVEDBYTHESECURITIESANDEXCHANGECOMMISSIONNORHASTHECOMMISSIONPASSEDUPONTHEACCURACYORADEQUACYOFTHISPROSPECTUS.ANYREPRESENTATIONTOTHECONTRARYISACRIMINALOFFENSE.TheinitialpublicofferingpriceofthesharesofferedherebywillbeafixedpricedeterminedbyagreementbetweentheCompanyandtheRepresentativesoftheUnderwriterswithintenbusinessdaysaftertheeffectivedateoftheregistrationstatement.Theinitialpublicofferingpricepersharewillnotbehigherthanthereportedlastsale(regularway)orthereportedlastaskedpriceoftheCommonStockoftheCompanyontheNewYorkStockExchangeimmediatelypriortothedeterminationoftheinitialpublicofferingprice,whicheverishigher,pluscents.Theunderwritingdiscountwillbeanamountpershare,notinexcessof%oftheinitialpublic,offeringprice,determinedbyagreementbetweentheCompanyandtheRepresentativesofthe"Underwriters.TheCompanyhasagreedtoindemnifytheseveralUnderwritersagainstcertaincivilliabilities,includingliabilitiesundertheSecuritiesActof1933.TheproceedstotheCompanywillbeanamountequaltotheinitialpublicofferingpriceless(i)theunderwritingdiscountand(ii)ex'pensespayablebytheCompanyestimatedat$150,000.ThesharesofCommonStockwillbeofferedbytheseveralUnderwriterswhen,asandifissuedbytheCompanyandacceptedbytheUnderwritersandsubjecttotheirrighttorejectordersinwholeorinpart.TheFirstBostonCorporationDrexelBurnhamLambertIncorporatedBacheHalseyStuartShieldsIncorporatedMerrillLynch,Pierce,Fenner8tSmithIncorporatedThedateofthisProspectusisMarch,1978. <fi INCONNECTIONWITHTHIS,OFFERING,THEUNDERWRITERSMAYOVER-ALLOTOREFFECTTRANSACTIONSWHICHSTABILIZEORMAINTAINTHEMARKETPRICEOFTHECOMMONSTOCKOFTHECOMPANYATALEVELABOVETHATWHICHMIGHTOTHERWISEPREVAILINTHEOPENMARKET.SUCHTRANSACTIONSMAYBEEFFECTEDONTHENEWYORKSTOCKEXCHANGE,THEPHILADELPHIASTOCKEXCHANGEORINTHEOVER-THE-COUNTERMARKET.SUCHSTABILIZING,IFCOMMENCED,MAYBEDISCONTINUEDATANYTIME.TheCompanyissubjecttotheinformationalrequirementsoftheSecuritiesExchangeActof1934andinaccordancetherewithfilesreportsandotherinformationwiththeSecuritiesandExchangeCommission.Informationconcerningdirectorsandofficers,theirremunerationandanymaterialinterestofsuchpersonsintransactionswiththeCompany,asofparticulardates,isdisclosedinproxystatementsdistributedtostockholdersoftheCompanyandfiledwiththeCommission.Suchreports,proxystatementsandotherinformationcanbeinspectedandcopiedatthepublicreferencefacilitiesmaintainedbytheCommissionat1100LStreet,N.W.,Washington,D.C.;219South
DearbornStreet,
Chicago,III.;26FederalPlaza,NewYork,N.Y.;and10960WilshireBoulevard,LosAngeles,Calif.CopiesofthismaterialcanalsobeobtainedatprescribedratesfromthePublicReferenceSectionoftheCommissionatitsprincipalofficeat500NorthCapitolStreet,N.W.,Washington,D.C.20549.TheCommonStockoftheCompanyislistedontheNewYorkandPhiladelphiaStockExchanges.Reports,proxystatementsandotherinformationconcerningtheCompanycanbeinspectedandcopiedattherespectiveofficesoftheseexchangesatRoom401,20BroadStreet,NewYork,N.Y.,andat17thStreetandStockExchangePlace,Philadelphia,Pennsylvania.Inaddition,reports,proxystatementsandotherinformationconcerningtheCompanycanbeinspectedattheofficesoftheCompany,TwoNorthNinthStreet,Allentown,Pennsylvania.Nodealer,salesmanorotherpersonhasbeenauthorizedtogiveanyInformationortomakeanyrepresentationnotcontainedinthisProspectusinconnectionwiththeoffermadebythisProspectusand,ifgivenormade,suchinformationorrepresentationmustnotberelieduponashavingbeenauthorizedbytheCompany.ThisProspectusisnotanoffertosellorasolicitationofanoffertobuyinanyjurisdictioninwhichitisunlawfultomakesuchanofferorsolicitation.NeitherthedeliveryofthisProspectusnoranysalemadehereundershall,underanycircumstances,createanyimplicationthattherehasbeennochangeintheaffairsoftheCompanysincethedatehereof.TABLEOFCONTENTSProspectusSummary..TheCompanyProblemsAffectingtheElectricUtilityIndustryandtheCompany....................ApplicationofProceeds............................ConstructionProgram..Financing..RateMatters.CommonStockDividendsandMarketPrices..StatementofIncome.Management'sDiscussionandAnalysisoftheStatementofIncome...................Page3444567910CapitalStructureBusiness.ElectricStatisticsDescriptionofCommonStock...............~...ExpertsLegalOpinions..Management.FinancialStatements.......OpinionofIndependentCertifiedPublicAccountants..Underwriting.Map.kPage18193132333334355354BackCover PROSPECTUSSUMMARYThefollowingmaterialisqualifiedinitsentiretybythedetailedinformationandfinancialstatementsappearingelsewhereinthisProspectus.THEOFFERINGSecurityOffered...........................CommonStockNumberofShares........................3,000,000UseofProceeds...........................Generalcorporatepurposesincludingthereductionofshort-termdebtincurredtoprovideinterimfinancingofconstructionandnuclearfuelexpendituresListed...........................NewYorkandPhiladelphiaStockExchanges(Symbol:PPL)PriceRange1977........................25'/a-20'/41978(ThroughFebruary22).....24'/4-22'/4ClosingPriceFebruary23,1978(NewYorkStockExchange).....22%THECOMPANYBusiness.TheCompanyderivesabout99/oofitsoperatingrevenuesfromelectricserviceServiceArea...Approximately10,000squaremilesincentraleasternPennsylvaniawithapopulationof2.4millionpersonsSourcesofGenerationduring1977..................................Coal79o/oOil19Hydro2100'/oFINANCIALINFORMATION19761977(a)OperatingRevenues(thousands).....$644,147$744,731NetIncome-BeforeDividendsonPreferredandPreferenceStock(thousands)..$112,111$149,763EarningsApplicabletoCommonStock(thousands)...$78,743$112,770EarningsPerShare...$2.68$3.37DividendsDeclaredPerShareofCommonStock.......$1.80$1.89NetUtilityPlant-atyearend(thousands)..................$2,380,109$2,690,229AsofDecember31,1977ActuaIAsAdjusted(b)Capitalization(thousands)Long-TermDebt(includingcurrentmaturities)....$1,260,495PreferredandPreferenceStock..........................487,375CommonEquity..........................859,264Total......................................................$2,607,134$1,260,49547.3/o483,37518.1922,11434.6$2,665,984100.0/o(a)Forfactorsaffecting1977andcurrentresults,seethesecondparagraphunder"Management'sDiscussionandAnalysisoftheStatementofIncome".(b)Asadjustedtogiveeffectto(I)theredemptionof40,000sharesofPreferenceStockinJanuary1976and(ii)theestimatednetproceedsfromthesaleoftheCommonStockofferedhereby. THECOMPANYTheCompanyisanoperatingutility,incorporatedunderthelawsoftheCommonwealthofPennsylvaniain1920.TheCompany'sgeneralofficesarelocatedatTwoNorthNinthStreet,Allentown,Pennsylvania18101,anditstelephonenumberis215-821-5151.ThepropertyoftheCompanyislocatedinPennsylvania(seeMap),iswellmaintainedandisingoodoperatingcondition.TheCompanyderivesabout99/oofitsoperatingrevenuesfromsupplyingelectricservice,andthebalancefromsupplyingsteaminthecityofHarrisburg.TheCompanyservesa10,000squaremileterritoryin29countiesofcentraleasternPennsylvania(seeMap),withapopulationofapproximately2,400,000persons.Thisserviceareahasahighpercentageofopenlandaswellas111communitieswithpopulationsover5,000,thelargestofwhicharethecitiesofAllentown,Bethlehem,Harrisburg,Hazleton,Lancaster,Scranton,Wilkes-BarreandWilliamsport.Importantindustrial,recreationalandagriculturalsectionsarelinkedtotheeasternpopulationcentersbyanextensivelimited-accesshighwaysystem.HersheyElectricCompany,asubsidiaryoftheCompany,provideselectricdistributionservicetoapproximately6,300customersinHershey,Pennsylvania.PROBLEMSAFFECTINGTHEELECTRICUTILITYINDUSTRYANDTHECOMPANYTheelectricutilityindustryingeneralhasbeenexperiencingproblemsof(a)increasingcostsoffuel,wages,materialsandequipment,(b)substantiallyincreasedcapitaloutlaysandlongerconstructionperiodsforlargerandmorecomplexnewgeneratingunits,(c)uncertaintiesinpredictingfutureloadrequirements,(d)increasedfinancingrequirementscoupledwithperiodicallyuncertainavailabilityofbothequityandborrowedcapital,(e)pastandprospectivesalesofcommonstockbelowbookvalue,(f)fuelavailability,(g)increasedconstructioncostsanddelaysandoperatingrestrictionsduetoenvironmentalrequirements,(h)theeffectivenessofenergyconservationeffortsandtheimpactoffluctuatingeconomicconditions,(i)litigationandproposedlegislationwhichmayhavetheeffectofdelayingorpreventingconstructionofnucleargeneratingandotherfacilitiesorlimitingtheuseofexisting-facilities=and(j)regulatorylagingrantingneededrateincreasesandth'einadequacyofsuchincreaseswhengranted.TheCompanyalsohasbeenexperiencingsimilarproblemsinvaryingdegrees.ForinformationregardingtheeffectontheCompanyofcertainofthesegeneralproblems,see"CONSTRUCTIONPROGRAM","FINANCING","RATEMATTERS","STATEMENTOFINCOME","MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME","BUSINESS"and"ELECTRICSTATISTICS".Referenceismadeto"BUSINESS-'FuelSupply(Coal)"forinformationconcerning(1)thepricingofcoalproducedbyTheOneidaMiningCompany,oneoftheCompany'saffiliatedmines,forfueladjustmentclausepurposes,whichreducedtheCompany'snetincomebyapproximately$4.3millionduring1977and(2)thepossibilityoffuturelossesifpresentminingplansforOneidaprovenottobeeconomicallyfeasible.Referenceismadeto"BUSINESS-FuelSupply(Coal)"forinformationconcerningastrikebytheUnitedMineWorkersofAmericawhichisadverselyaffectingtheCompany's1978operationsandearnings.APPLICATIONOFPROCEEDSThenetproceedsfromthesaleoftheCommonStockofferedherebywillbeaddedtotheCompany'sgeneralfundsandusedforgeneralcorporatepurposesincludingthereductionofshort-termdebtincurredtoprovideinterimfinancingforconstructionandnuclearfuelexpenditures. CONSTRUCTIONPROGRAMTheCompany'sconstructionprogramisundercontinuingreviewandisrevisedfromtimetotimetoreflectchangesincustomerdemand,businessconditions,thecostandavailabilityofcapitalandotherfactors.ActualconstructionexpendituresanddatesofcompletionforvariousconstructionprojectsmayvarybecauseofchangesintheCompany'splans,costfluctuations,theavailabilityoflabor,materialsandequipment,environmentalregulations,licensingdelaysandotherfactors.TheSusquehannastation,whichistheonlygeneratingfacilitythattheCompanycurrentlyhasunderconstruction,willconsistoftwonuclear-fueledgeneratingunitseachhavinganestimatedtotalnetcapabilityof1,050,000kilowatts.InMarch1977theCompanyagreedtosella10/oundividedownershipinterestintheSusquehannanuclearunitstoAlleghenyElectricCooperative,Inc.(Allegheny).Pendingreceiptoftheregulatoryapprovalsrequiredtocompletethesale,AlleghenymadeaninitialpaymenttotheCompanyof$65millioninMarch1977andbecameobligatedtopaycurrently10/oofsubsequentconstructionandnuclearfuelexpendituresfortheSusquehannaunits.ThroughDecember31,1977,Allegheny'spaymentstotheCompanyapproximated$84million.InJanuary1978,followingreceiptofthenecessaryapprovalsfromthePennsylvaniaPublicUtilityCommission(PUC),theNuclearRegulatoryCommission(NRC)andtheRuralElectrificationAdministration,thesalewascompleted,ConstructionoftheSusquehannaunitsisproceedingunderNRCconstructionpermitsissued..inNovember1973.AtDecember31,1977,constructionofUnitNo.1wasabout60'/ocompletedandUnitNo.2wasabout40/ocompleted.AnoperatinglicensefromtheNRCwillberequiredpriortothestart-upandtestingofeachunit.ChangesindesigrtnecessarytomeetNRCrequirements,delaysindeliveryofmaterialandequipment,scarcityoflaborandotherfactorshavenearlyexhaustedschedulecontin-genciesbuiltintotheproject.Asaresult,andinrecognitionofthepotentialfordelaysinfutureconstructionaswellasinobtainingtherequiredlicensesandregulatoryapprovals,onatimelybasis,theCompanyhasrevisedtheestimatedin-servicedateforSusquehannaUnitNo.1fromNovember1980toFebruary1981.SubsequentevaluationsmayrequiretheCompanytofurtherdelaytheestimatedin-servicedateforSusquehannaUnitNo.1andtodelaythecurrentlyestimated1982in-servicedateforUnitNo.2.Thefollowingtabulationshowsactualconstructionandnuclearfuelexpendituresfor1977andtheCompany'scurrentestimateoftheseexpendituresforthethreeyears1978-1980includingprovisionfortheAllowanceforfundsusedduringconstruction(Allowance).Theamountsshowninthetabulation,havebeenreducedtoreflectAllegheny'scontributiontothecostoftheSusquehannaunitsandnuclearfuel.1977197819791980MillionsofDollarsConstructionexpenditures:Newgeneratingfacilities.......................$237Transmissionanddistributionfacilities..'8Other16Totalconstructionexpenditures.....341Nuclearfuelinprocess..16Total.$357$330103384714$475$324$26411412352864904734057$530$530Estimatedconstructionexpendituresforthethreeyears1978-1980include$150millionforenvironmentalprotection.See"BUSINESS-EnvironmentalMatters"forinformationconcerningpossibleadditionalcapitalrequirements. TheCompany's90%shareoftheestimatedtotalnetcapabilityofeachoftheSusquehannaunitswillbe945,000kilowattsanditsshareoftheestimatedconstructionexpenditures(basedonthecurrentlyscheduledin-servicedates,butexcludingnuclearfuel)isestimatedat$1.75billion.TheCompanyestimatesthatadelayofoneyearinthe1981and1982in-servicedatesoftheSusquehannaunitswouldincreasetheCompany'sshareofthecostoftlieseunitsbyabout$175million.TheUnitedStatesDistrictCourtfortheWesternDistrictofNorthCarolinahasheldthattheprovisionsofthePrice-AndersonActlimitingliabilityoftheownersofnuclearpowerplants,andofthecontractorsandsuppliersforsuchplants,totheamountsofavailableinsuranceandgovernmentalindemnityareunconstitutionalasviolatingthedueprocessandequalprotectionclausesoftheUnitedStatesConstitution.TheUnitedStatesSupremeCourthasgrantedreviewoftheDistrictCourtdecision.IftheSupremeCourtaffirmsthedecision,thelimitationofliabilitywouldnotbeavailabletotheCompany.AlthoughthefullimpactofadecisionbytheSupremeCourtcannotbeevaluatedatthistime,theCompanydoesnotexpecttochangeitsplanstocompletetheconstructionofandtooperate-theSusquehannaunits.RecentamendmentstothePrice-AndersonAct,whichmaybeaftectedbythislitigation,providethat-allownersofnuclearreactorsmaybeassessedupto$5millionperoperatingreactorforeachnuclearincidentoccurringatanyreactorintheUnitedStateswithalimitoftwoassessmentsperyear.GivingeffecttotheCompany's90%ownershipoftheSusquehannaunits,themaximumassessmentagainsttheCompanyunderthePrice-AndersonActwhenbothSusquehannaunitshavebeenplacedincommercialoperationisnotexpectedtoexceed$18millionperyear.FINANCINGThetinancingofitsconstructionprogramrequirestheCompanytoengageinfrequentsalesofsecurities,includingdebtandpreterred,preterenceandcommonstocks.Interimfinancingisobtainedfrombankborrowingsandthesaleofcommercialpaper.TheCompany's1978-1980constructionandnuclearfuelexpendituresarecurrentlyestimatedat$'f.54billion.Approximatelytwo-thirdsofthisamountisexpectedtobeobtainedfromoutsidefinancingwiththebalancetobeprovidedfrominternalsources.TheestimatesofconstructionandnuclearfuelexpendituresandinternalfundssourcesbothincludetheAllowance.Inaddition,about$62millionofmaturinglong-termdebtobligationsand$16.5millionofpreferredandpreferencestocksinkingfundrequirementsareplannedtobemetduring1978-1980bysalesofsecurities.InadditiontothesaleoftheCommonStockofferedhereby,theCompanyanticipatesthatothersecuritieswillbesoldduring1978.Theexactamount,natureandtimingoffuturesalesofsecuritieswillofnecessitybedeterminedinthelightofmarketconditionsandotherfactors.'hemortgageindentureunderwhichtheCompany'sfirstmortgagebondsareissuedcontainscertainprovisions,principallyearningscoverageandpropertyadditionstests,limitingtheissuanceofadditionalbonds.TheCompanyestimatesthatapplicationoftheserestrictions,ofwhichtheavailabilityofpropertyadditionsispresentlythemostlimiting,wouldhavepermittedtheCompany,asofDecember31,1977,aftergivingeffecttothesaleofa10%undividedinterestinSusquehannatoAllegheny,toissuef6 about$443millionprincipalamountofbonds.ThisamountexceedstheprincipalamountofbondsthattheCompanycurrentlyexpectstoissuethrough1979.Indenturetests,however,wouldhavetobemetatthetimeofissuance.TheCompany'schartercontainsprovisionslimitingtheissuanceofadditionalsharesofPreferredStock.ThemorerestrictiveoftheseprovisionsrequiresIncomeBeforeInterestCharges(grossincome)ofnotlessthan1.5timesthesumoftheannualizedinterestrequirementsonindebtednesstobeoutstandingandthedividendrequirementsonPreferredStocktobeoutstanding.IncalculatinggrossincomeundertheprovisionsoftheCompany'scharter,theCompanyincludestheborrowedandequityfundscomponentsoftheAllowanceasapartofgrossincome.BasedontheCompany'.searningsfortheyear1977,thegrossincomeprovisionswouldnotlimittheamountofPreferredStockwhichtheCompanyplanstoissueduring1978.TherearenocharterprovisionslimitingtheissuanceofPreferenceStock.RATEMATTERSSalestoultimatecustomers,whichareregulatedbythePUC,accountedforapproximately98/0oftheCompany'srevenuesfromelectricsalesoverthepastfiveyears.Theremaining2'/oofrevenuesfromelectricsales,representedbysalestoothersforresale,areregulatedbytheFederalEnergyRegulatoryCommission(FERC)asareinterchangepowersales,whichareclassifiedasacredittooperatingexpenses.TheCompany'sPUCandFERCtariffsincludefueladjustmentclauses.See,however,thediscussionoftheCompany'sOneidamineunder"BUSINESS-FuelSupply(Coal)"concerningthelimitedrecoveryofthecostofcoalminedatOneida.PUCtariffsalsoincludeataxsurchargetorecoverthecostofincreasedPennsylvaniataxes.Since1973theCompanyhasrequestedandthePUChasgrantedthefollowinggeneralincreasesinbaseratechargesforelectricserviceexpressedaspercentagesofannualizedrevenuesinthetestyear-usedforthefinalPUCorderineachproceeding.Annualizedrevenuesconsistofrevenuesderivedfrombaserates,fueladjustmentclausesandthetaxsurcharge.RequestFiledApril1973o/oIncreaseRequestedTestYearIncrease(TwelveMonthsEnded)Effective11.4April30,1973June1973January19740-Millions$9.419.1$28.54/O2.65.27.8IncreaseGrantedMarch197514.6July31,1975September1975April1976August1976$21.03.920.03.737.37.0$78.3.14.6AcomplainantintheCompany'sMarch1975rateproceedingappealedtheAugust1976decisionofthePUCgrantingthe14.6/oincrease.Thisappeal,whichwasdeniedbytheCommonwealthCourtof I Pennsylvania,raisedobjectionsregarding,amongotherthings,theexistenceandamountofdifferencesinratesbetweencertainoftheclassesofservicesprovidedbytheCompany.ThisappealdidnotquestionthePUC'sAugust1976decisionwithrespecttomeasuresofvalue,levelofrevenuesorrateofreturn.TheSupremeCourtofPennsylvaniahasagreedtoreviewtheactiontakenbytheCommonwealthCourtindenyingthecomplainant'sappeal.Arateincreaseaggregatingapproximately$1millionannuallyfortheCompany'sfifteenresalecustomerswaspermittedbyFERCtobecomeeffective,subjecttorefund,inNovember1976.CertainoftheaffectedcustomerswhowereopposingtheincreasehaveenteredintoasettlementagreementwiththeCompany.ArequestforapprovalofthisagreementispresentlypendingbeforeFERC.InaproceedingaffectingailPennsylvaniaelectricutilities,thePUCinMay1975institutedaninvestigationintofueladjustmentclauses.AtthecommencementofthisinvestigationthePUCproposedforconsideration,amongotherthings,(1)alimitationontherecoveryofincreasedfuelcoststolessthan100/o,(2)theinclusionofnuclearfuelcostsintheformula,(3)arevisioninthemethodofcalculatingthefuelcostsastheyrelatetointerchangepowerpurchasesandsalesand(4)theuseofatwelvemonthperiodfordeterminingthecurrentcostoffuel.InaseparateproceedingaffectingallmajorPennsylvaniaelectricutilities,thePUCinNovember1977issuedproposedregulationstoreplacefueladjustmentclauseswithalevelizedenergycostrate.UnderthePUC'sproposedregulations,whichwouldbecomeoperativeonJuly1,1978,eachutility'senergycostrate.wouldincludeall(1).fossilfuelcosts,(2)nuclearfuelcosts,(3)purchasedpowerenergycostsand(4)netinterchangeenergysalesandpurchases.Utilizinghistoricalandprojecteddata,autility'senergycostratewouldbesetprospectivelyforatwelvemonthperioddeterminedbythePUCduringwhichtherateisintendedtoremainstable.Anupwardordownwardadjustmentintheratecouldbemadeduringthetwelvemonthperiodintheeventthatactualcostsweresignificantlygreaterorlessthantheenergycostrate.Theproposedregulationscontemplatethatifthecostsactuallyincurredexceedcostsspecifiedintheutility'senergycostrate,thefullamountofexcesscostsmaynotberecoverablebytheutility.Intheeventofanover-recoveryofenergycosts,theutilitywouldberequiredtorefundeitheraportionoralloftheexcesstocustomers,depending'upontheamountofsuchexcess.Inaddition,provisionsaremadeforpenaltiesundercertaincircumstances.Theproposedregulationsprovidethatdeferredfuelcostsaccumulatedunderthepresentfueladjustmentclauseswouldberecoverablepursuanttoareasonableplanfiledbyautility.ThePennsylvanialegislatureiscurrentlyconsideringseveralproposalswhichwouldeliminateautomaticadjustmentclausesforfuelandpurchasedpowercostsincurredbymajorPennsylvaniaelectricutilitiesandwouldpermittherecoveryofthesecostsonlythroughbaserates.TheCompanyisunabletopredicttheultimateoutcomeoftheforegoingadministrativeandlegislativeproceedings.AmendmentstothePennsylvaniaPublicUtilityLaw,generallyeffectiveinOctober1977,havealteredthePUC'srate-makingprocedures.Amongotherthings,theamendmentsshortentheperiodduringwhichthePUCmustactonafilingofageneralrateincreasefromelevenmonthstoninemonths.Interimratereliefduringthependencyofageneralr'ateincreaserequestwillnotbepermittedexceptunderconditionsoffinancialemergency.Thenewprovisionspermittheuseoffutureprojectedrather thanhistoricaltestyearsasthebasisforratefilings.TheamendmentsalsoprescribecertainchangesinPUCproceduresforvotingonrateincreaseapplications,andcreatetheofficeofAdministrativeLawJudgetoconducthearirigsandsubmitrecommendationstothePUC.COMMONSTOCKDIVIDENDSANDMARKETPRICESTheCompanyhaspaidquarterlycashdividendsonitsCommonStockineveryyearsince1946.DividendsdeclaredinthepastfiveyearsaresetforthontheStatementofIncome.OnFebruary22,1978theCompanydeclaredaregularquarterlydividendof48centspersharepayableonApril1,1978totheholdersofrecordofCommonStockonMarch10,1978.SincetheCommonStockofferedherebywillnotbeoutstandingontheMarch10recorddate,suchsharesarenotentitledtotheApril1dividend.Futuredividendswillbedependentuponfutureearnings,financialrequirementsandotherfactors.ThehighandlowsalepricesoftheCompany'sCommonStockasreporte'dbyTheWa/IStreetJournal(asNewYorkStockExchangetransactionsthroughJanuary23,1976andthereafterasCompositeTransactions)wereasfollows:HighLowQuartersin19761st2nd3rd4th21%20V<21V422Vr19Vs19Vr2020%Quartersin19771st2nd3rd4th22Vr24'/i25Ve24Vr203/421%22%22'/i1979(throughFebruary22)24'/422'/4ThereportedlastsalepriceoftheCommonStockontheNewYorkStockExchangeonFebruary23,1978was$22%pershare.ThebookvalueoftheCommonStockatDecember31,1977was$24.58pershare.UponthesaleoftheCommonStockofferedhereby,thebookvaluepershareatthatdateonaproformabasis,reflectingestimatednetproceedstotheCompany,wouldhavebeen$TheCompanyhasadividendreinvestmentplanwhichpermitsholdersofitsPreferred,Preferenceand'CommonStocktopurchasesharesofCommonStockdirectlyfromtheCompanybyhavingcashdividendsautomaticallyreinvestedata5/odiscountinthepurchasepriceandbymakingoptionalcashpayments(towhichthe5/odiscountdoesnotapply).
OperatingRevenues(99%Electric)(a)...........................OperatingExpensesCostofenergyFuel(b)(c)..Powerpurchases..Interchangepowersales.Netcostofenergy."Otheroperation.Maintenance..DepreciationIncometaxes(d)...Taxes,otherthanincome(d)Totaloperatingexpenses.........................OperatingIncome.OtherIncomeandDeductionsAllowanceforfundsusedduringconstruction(e)Equityandborrowedfunds..........................EquityfundsIncometaxcredits(d)(e)Other-net(c)..Totalotherincomeanddeductions.........IncomeBeforeInterestCharges..InterestChargesLong-termdebtShort-termdebtandotherAllowanceforborrowedfundsusedduringconstruction(e)..NetInterestcharges....IncomeBeforeNonrecurringCredit.NonrecurringCreditRelatedtoAccountingChange,NetofIncomeTaxes($4,831)(b).NetIncome-BeforeDividendsonPreferredandPreferenceStock.DividendsoriPreferredandPreferenceStock...............433,69839,783(306,456)167,025110,76463,41368,03591,50159,682580.420184,311271,636321,78337,69829,657(172,823)(160,163)125,57715,299(70,175)70,70169,00733,64848,83733,94330,005286,14198,673192,35324,176(108,723)107,80680,56541,29852,39939,21135,571356,850115,186191,277103,75854,94662,47843,82849,526505,813138,334136,51192,18647,95658,54047,29840,669423,160120,96945,19236,60520,73214,96722,45913,708(928)35,239219,55014,4571,38161,030199,36411,2013,15450,960171,9295,0763,41829,226144,412911,30016,358115,03179,7837,47091,500(f)5,22367,9326,45643,2034,91651,1499,946(26,936)69,787149,76387,253112,11174.38897.54148,11961,09566,91283,3174,16266,91217,191$49,72187,47919,656$67,82397,54124,509$73,032149,76336,993(g)$112,770112,11133,368$78,743EarningsApplicabletoCommonStock.EarningsPerShareofCommonStockBeforeNonrecurringCredit..NonrecurringCredit(b)..EarningsPerShareofCommonStock........AverageNumberofCommonSharesOutstanding(Thousands).DividendsDeclaredPerShareofCommonStock.....$2.87$2.880.19$3.07$2.57$3.37$2.68$3.37$2.68,$2.8725,459$1.80$2.5733,471$1.8929,367$1.8022,067$1.7719,359$1.68STATEMENTOFINCOMEThefollowingStatementofIncomeforthefiveyearsendedDecember31,1977hasbeenexaminedbyHaskinsfrSells,independentCertifiedPublicAccountants,whoseopinionappearselsewhereinthisProspectus.TheStatementshouldbeconsideredinconjunctionwithitsnotesandtheotherfinancialstatementsandrelatednotesappearingelsewhereinthisProspectus.19731974197519761977ThousandsofDollars$384,814$472,036.$544,129$644,147$744,73110
(a)Referenceismadeto"RATEMATTERS"foradditionalinformationconcerningfueladjustmentclauses.(b)EffectiveJanuary1,1974,theCompany,asauthorizedbythePUC,changeditsmethodofaccountingforfuelcoststoachievematchingoffuelexpenseandrevenuesbyaccountingperiods.Thischangeresultedinthechargetoincomeforfuelcostsrecoverableinthefuturebeingdeferredtotheperiodsinwhichthesecostsarebilledtocustomersthroughapplicationoffueladjustmentclauses.For1974,fuelcostswerelowerbyanetamountof$26.6millionand,afterincometaxeffects,'EarningsApplicabletoCommonStockwereincreasedby$12.6million($0.57pershare)asaresultofthisaccountingchange.TheNonrecurringCreditshownontheStatementofIncomerepresentsthecumulativeeffecttoDecember31,1973ofthechangeinaccountingforfuelcosts,netofrelatedincometaxes.Inthefollowingsummary,earnings"AsReported"includestheNonrecurringCreditrecordedin1974andearnings"Restated"reflectstheeffectofretroactiveapplicationofthechangeinaccountingforfuelcostsandrelatedincometaxeffectshadthenewmethodbeenusedsincetheprincipalfueladjustmentclausebecameeffective:19731974EarningsApplicabletoCommonStock(thousandsofdollars)AsReported.Restated.EarningsPerShareofCommonStock(1)AsReported.Restated.$49,721$67,82351,06663,661.$2.57$3.072.642.88(1)Basedonaveragenumberofsharesoutstanding.(c)Referenceismadeto"BUSINESS-FuelSupply(Coal)"forinformationconcerningoperationsofTheOneidaMiningCompany(Oneida),oneoftheCompany'ssubsidiaries,relatedto(1)thewrite-otfofcertaindevelopmentcostsreflectedinOtherincome-netand(2)thepricingofcoalproducedbyOneidaforfueladjustmentclausepurposesreflectedinfuelcosts,whichreducedtheCompany'snetincomebyapproximately$6.6millionand$4.3million,respectively,in1977.Futurelossesmaybeincurreditpresentminingplansprovenottobeeconomicallyfeasible.(d)ReferenceismadetoNote10toFinancialStatementsforinformationrelatingtotaxes.(e)AsprovidedintheUniformSystemofAccounts,thecostoffundsusedtofinanceconstructionprojectsiscapitalizedaspartofconstructioncost.AfteraprojectisplacedinservicetheCompanyispermittedtoincludeinrateschargedforutilityserviceareturnon,anddepreciationot,thecostoffundssocapitalized.ThecomponentsofAllowanceforfundsusedduringconstruction(Allowance)shownontheStatementofIncomeunderOtherIncomeandDeductionsandInterestChargesarenon-cashitemsequaltothecostoffundscapitalizedduringtheperiodandservetooftsetontheStatementofIncomethecostoffinancingconstruction.SinceFebruary1,1974,theAllowanceratehasbeencomputedonanafter-taxbasisandincometaxreductionsassociatedwithtlieinterest(borrowedfunds)componentoftheAllowancearereflectedin11 PriortoJanuary1,1977,themethoduseddidnotprovidefordirectcompoundingandtheCompanycomputedtheAllowancebyapplyingtheratetoaconstructionworkinprogressbasewhichdidnotincludetheaccumulatedAllowancewhichhadpreviouslybeenrecorded.However,anequivalentratecanbecalculatedfortheperiod1973-1976byrelatingtheamountofAllowancerecordedduringtheperiodtothebalancesoftheconstructionworkinprogressincludingtherelatedaccumulatedAllowance.TheCompany'sAllowanceratesandtheequivalentratesareasfollows:AllowanceEquivalentRateRate8.5'/07.9'/o7.5,7.08.07.39.258.38.757.97.47.9January1,1973-January31,1974......February1,1974-June30,1974..........July1,1974-December31,1974.........January1,1975-December31,1975...January1,1976-December31,1976...January1,1977-December31,1977:..BeginningJanuary1,1978.....................BasedontheassumptionthatfundsrequiredforconstructionfinancingwereprovidedsubstantiallyinthesameproportionastheCompany'saveragecapitalizationratiosoverthefive-yearperiodendedDecember31~1976(51'/odebt,18/opreferredandpreferencestockand31/ocommonstockequity)andusinganafter-taxcostofdebtsinceFebruary1,1974,theportionoftheAllowanceattributabletofundsprovidedbycommonequityasapercentageof'EarningsApplicabletoCommonStockfortheyears1973-1976wouldbeapproximatelyasfollows:IncometaxcreditsunderOtherIncomeandDeductionswithacorrespondingincreaseintheprovisionforincometaxeschargedtoOperatingExpenses.DuringtheperiodFebruary1,1974throughDecember31,1976,theAllowanceratewascomputedsemi-annuallyinaccordancewithproceduresinitiatedbythePUCusingaspecifiedrateforcommonequityandthecostoffixedratesecuritiesissuedinthetwelvemonthsprecedingthesemi-annualcomputation.EffectiveJanuary1,1977,theCompanycomputedtheAllowancerateinaccordancewitha1977FERCorderwhich(1)providesaformulafordeterminingthemaximumAllowancerate,(2)providesforsemi-annualcompoundingand(3)providesforsegregatingtheAllowanceintotwocomponents,borrowedfundsandequityfunds.ThegrossborrowedfundscomponentrecordedsinceJanuary1,1977isincludedasacreditintheInterestChargessectionoftheStatementofIncomeandtheremainderofthetotalAllowancerecordedisshownunderOtherIncomeandDeductionsasEquityfunds.TheCompanyhasnotreclassifiedtheAllowanceintoborrowedfundsandequityfundscomponentspriortoJanuary1,1977sincetheallocationwouldnotbecomparabletothatrequiredundertheFERCformula.1973..1974..1975.1976.11o/o162127TheCompanyunderstandsthatanissuehasbeenraisedinlitigationtowhichitisnotapartyrelatingtotheAllowanceasreportedbyanotherpublicutility.Inthislitigation,itisallegedthatactualearnings12 werenotproperlypresentedinthattheAllowancewasincludedas"Otherincome"withoutanadequateexplanationofthisitem,andthattheAllowanceisnotinfactincomeasgenerallyunderstood,butratheraprojectionoffutureearningsnotreflectinganyactualyieldonassetsoranyrevenueduringanyfiscalperiodandnotinfactearneduponcompletionofconstruction.TheAllowance,whichisnotanitemofcurrentcashincome,isincludedinthefinancial'statementsoftheCompanyinaccordancewiththeapplicableregulatorysystemofaccountsandinaccordancewithgenerallyacceptedaccountingprinciples.TheCompanyisunabletopredicttheoutcomeofthislitigationoritseffect,ifany,upontheCompany.(f)Theannualinterestrequirementsonlong-termdebtoutstandingatDecember31,1977,includingtheamountduewithinoneyear,are$99,515,000.(g)Excludingtheannualdividendrequirementson40,000sharesofPreferenceStock,$9.25Series,redeemedinJanuary1978,theannualdividendrequirementsonPreferredandPreferenceStockoutstandingatDecember31,1977are$20,323,000and$19,500,000,respectively.ThefollowingresultsofoperationforthetwelvemonthsendedFebruary28,1978areunauditedbutintheopinionoftheCompanyincludealladjustments(whichcompriseonlynormalrecurringaccruals)necessaryforafairpresentationofsuchresults:OperatingRevenues$OperatingIncome.............................................$NetIncome-BeforeDividendsonPreferredandPreferenceStock.......$EarningsApplicabletoCommonStock$EarningsPerShareofCommonStock.$Forfactorsadverselyaffectingcurrentresultsofoperation,seethesecondparagraphunder"MANAGE-MENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME".MANAGEMENTISDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOMETheStatementofIncomereflectstheresultsofpastoperationsandisnotintendedasanyrepresentationastotheresultsofoperationsforanyfutureperiod.Futureoperatingresultswillnecessarilybeaffectedbyvariousanddiversefactorsanddevelopments,includingtheobtainingofadequateandtimelyrateincreases,fuelcosts,fuelavailability,businessactivity,customerdemand,energyconservation,interchangepowersales,taxes,laborcontracts,availabilityofcapital,governmentalactions,environmentalexpendituresandothermatters.TheCompanyisunabletopredictthecombinedeffectoftheabovefactorsonitsfutureoperatingresults.TheCompany'searningsin1977reflectedsharplyincreasedelectricsalestointerconnectedutilitiesathigherpricesandafullyear'simpactofrateincreaseswhichbecameeffectivein1976.The1976rateincreaseswillnothaveacomparablefavorableeffecton1978operatingresults,astheydidin1977.Accordingly,becauseofcontinuingincreasesinthecostsofdoingbusinessandexpectedlowersalestointerconnectedutilities,lowerearningsareanticipatedfor1978.Inaddition,forinformationconcerningastrikebytheUnitedMineWorkersofAmericawhichisadverselyaffectingtheCompany's1978operationsandearnings,see"BUSINESS-FuelSupply(Coal)".ThefollowinganalysisoftheCompany'sfinancialperformanceexplainsthereasonsforchangesinspecificitemsontheStatementofIncomecomparingtheyears1976to1975and1977to1976.13 A't'I EnergySalesandOperatingRevenuesThechangeinoperatingrevenuesfromtheprioryearisattributabletothefollowing:Increase(Decrease)cseeianMillionsofDollarsElectricrevenuesQuantityofsalesto:Ultimatecustomers.Othersforresale.RateincreasesFueladjustmentclauses.Other(includingtaxsurcharge)SteamrevenuesTotal$19.30.340.433.87.3101.1(1.1)$100.0$18.00.436.536.79.2100.8(0.2)$100.6TheCompany'senergysalesincreased6.5%in1976reflectinganimprovementintheeconomyandindustrialactivityintheCompany'sservicearea.Energysalesfor1977,excludingsalesofHersheyElectricCompany(acquiredDecember31,1976),increased578millionkwhor2.8%over1976.HersheyElectricCompanysales,whicharenotincludedinsalesstatisticspriortoJanuary1,1977,totaled269millionkwhin1977resultinginaconsolidatedsalesincreaseof4.2%in1977.Thelowersalesgrowthin1977wasdueprincipallytomoremoderateweatherandatemperingofgeneraleconomicgrowth.RateincreasesforultimatecustomersbecameeffectiveinSeptember1975($21.0millionannually),April1976($20.0millionannually)andAugust1976($37.3millionannually).TheCompany'stariffsincludefueladjustmentclauseswhichadjustpricesforelectricserviceforvariationsin'hecostoffuelusedtogenerateelectricity.See,however,thediscussionoftheCompany'sOneidamineunder"BUSINESS-FuelSupply(Coal)"concerningthelimitedrecoveryofthecostofcoalminedatOneida.Revenuesfromthefueladjustmentclausestotaled$168.3millionin1976and$205.0millionin1977,reflectingtheincreasedleveloffuelcostsandadditionalenergysales.Referenceismadeto"RATEMATTERS"foradditionalinformationconcerninggeneralrateincreasesgrantedtheCompanyandfueladjustmentclauses.CostofEnergyThenetcostofenergyincludesfuelexpensepluspowerpurchaseslesspowersoldtootherutilities.IncludedinpowerpurchasesisthevalueofelectricitygeneratedduringthetestperiodoftheCompany'snewgeneratingunits. ' Fuel.Thechangeinfuelexpensefromtheprioryearisattributabletothefollowing:Increase(Decrease)19761977MillionsofDollarsElectricfuelexpenseQuantityofelectricitygenerated...Averagecostoffuelsburned........$17.9$54.836.060.053.9114.8Lessincreaseinfuelcostsdeferredtomatchrevenuesfromfueladjustmentclauses.......SteamheatfuelexpenseTotal..2.951.0(0.8)$50.22.8112.0(01)$111.9Thecostoffuelconsumedincreasedduring1976and1977asaresultofgreatergenerationofenergyandincreasesinthecostoffuelspurchased.Theincreaseinenergygeneratedwasdueprincipallytotheadditionoftheoil-firedMartinsCreekunits-No.3wasplacedinserviceinOctober1975andNo.4wasplacedinserviceinMarch1977.See"ELECTRICSTATISTICS"fordetailofgenerationbyfuelsource.Theaveragecostoffuelsconsumedincreasedduring1976and1977duetothecombinedeffectsofhighercoalpricesandthecostofoilconsumedattheMartinsCreekunits,whichhaveafuelcostperkwhgeneratedapproximatelytwicethatoftheCompany'scoal-firedunits.Theaveragecostoffuelconsumedperkwhgeneratedwas1.04centsin1975,1.17centsin1976and1.35centsin1977.Theportionofthecostoffuelconsumedwhichisrecoverablethroughfueladjustmentclausesisdeferredtotheperiodinwhichsuchcostsarebilledtocustomers.InterchangePowerSales.ThetotalelectricenergyavailableforsaleincludesenergygeneratedbytheCompany'splantsandpowerpurchasedfromothers,afterdeductingCompanyusesandlinelosses.During1976and1977,approximately29/oand37/o,respectively,ofthetotalelectricenergyavailablewassoldtootherutilitiesunderinterconnectionarrangements.AsrequiredbyboththePUCandFERC,suchsalesarenotrecordedas.OperatingRevenuesbutarecreditedtoOperatingExpensesontheStatementofIncome.Thechangeininterchangepowersalesfromtheprioryearisattributabletothefollowing:Increase(Decrease)Quantityofenergysold..Averagepriceofenergysold.Other.Total.19761977MillionsofDollars$(7.9)$77.6(5.7)65.50.93.2$(12.7)$146.315 Thepricereceivedforpowersoldontheinterchangereflectsasplittingofthedifferencebetweenthebuyer'sandtheseller'scostofgeneration.During1976therewasanarrowingofthedifferentialbetweentheCompany'scostofgeneratingelectricityandthepricereceivedforinterchangepowersales.Alsoln1976,increasedsalestocustomersreducedthequantityofeconomicpoweravailableforsalestointerconnectedcompanies.TheCompanyexperiencedanunprecedentedlevelofinterchangesalesduring1977athigherprices.Thesesalesweretheresultofmany-factors,includingtheadditionofnewgeneratingcapacity(MartinsCreekUnitNo.4),excellentperformanceoftheCompany'sgeneratingunits,extremeweatherconditionsduringcertainwinterandsummermonthsandtheextendedoutagesofseveralmajorgeneratingunitsofotherinterconnectedcompanies.TheaveragepricetheCompanyreceivedforInterchangepowersaleswas1.97centsperkwhin1975,1.90centsperkwhin1976and2.43centsperkwhin1977.TheseamountsweresubstantiallyinexcessoftheCompany'saveragefuelcosts.OtherOperationandMaintenanceExpensesTheincreasesinotheroperationandmaintenanceexpensessuchaswagesandbenefits,materialsandsupplies,rentsandinsuranceprincipallyreflecttheeffectsofinflationandthecostsofoperationandmaintenanceofnewfacilitiesplacedinservice,IncludingtheCompany'sMartinsCreekoil-firedunits.DepreciationIncreaseddepreciationexpenseisduetonewfacilitiesplacedinservice,includingMartinsCreekUnitsNos.3and4whichbegancommercialoperationin1975and1977,respectively.ForinformationconcerningareductionintheCompany'scompositedepreciationrateasofJanuary1,1976,seeNote5toFinancialStatements.TaxesForananalysisoftaxes,seeNote10toFinancialStatements.AllowanceforFundsUsedDuringConstructionTheAllowanceforfundsusedduringconstructionhasincreasedsubstantiallyduringtheyearsbeingcomparedasaresultoftheCompany'sextensiveconstructionprogram.ForadditionalinformationconcerningtheAllowance,seeNote(e)tothe"STATEMENTOFINCOME".OtherIncome-NetThereductioninOtherincome-netduring1977reflects,amongotherthings,a$6.6million(netofincometaxes)lossofTheOneidaMiningCompany,asubsidiary,whichwasrecordedbytheCompanyinaccordancewiththeequitymethodofaccounting.Foradditionalinformationsee"BUSINESS-FuelSupply(Coal)". CostofFixedIncomeSecuritiesThechangesfromtheprioryearininterestchargesondebtandindividendsonPreferredandPreferenceStockwere:Increase(Decrease)19761977MillionsofDollarsInterestChargesLong-termdebt.Short-termdebt.Other.DividendsonPreferredandPreferenceStock.....$11.9$11.70.9(2.6)0.10.48.93.6TheincreasesinIong-termdebtinterestchargesanddividendsonPreferredandPreferenceStockwereduetoissuanceofsecuritiesprincipallytofinancetheCompany'sconstructionprogramandtherefinancingofmaturingdebtwithsecuritiesbearinghigherinterestrates.During1976and1977,outstandinglong-termdebtincreasedby$217millionandPreferredandPreferenceStockincreasedby$121million.Interestchargesonbankloansandcommercialpapernotesvaryfromyeartoyearinrelationtotheamountofshort-termdebtoutstandingandtheinterestratesineffect.Foradditionalinformationonshort-termdebtseeNote4toFinancialStatements.17 CAPITALSTRUCTUREThecapitalstructureoftheCompanyatDecember31,1977andasadjustedasofthatdatetogiveeffectto(1)theredemptionof40,000sharesofPreferenceStock,$9.25Series,inJanuary1978and(2)thesaleoftheCommonStockofferedherebyisasfollows(thousandsofdollars):ActualAmount4/iOfTotalAsAdjustedAmount4/iofTotalLong-TermDebt(a)Firstmortgagebonds(2a/4/o-10'/a/o)..............Notes.Unamortized(discount)andpremium-net...Totallong-termdebt........................ShareownersInvestment(b)Preferredandseriespreferredstock(335o/o-9.24/o)"Preferencestock($8.00-$13.00)...................TotalpreferredandpreferencestockCommonstock.Capitalstockexpense.EarningsreinvestedTotalcommonequity....Totalshareownersinvestment...Totalcapitalization.....$1,245,00020,929(5,434)1,260,49548.3281,37510.8206,0007.9487,375582,983(10,630)286,911859,2641,346,63933.0$2,607,134100.0$1,245,00020,929(5,434)1,260,49547.3281,37510.5202,0007.6100.0483,375645,983(c)(10,774)(d)286,905(d)922,11434.61,405,489$2,665,984,(a)SeeNotes4and8toFinancialStatementsfordetailsconcerningshort-termandlong-termdebt.Long-termdebtatDecember31,1977includes$3,756,000duewithinoneyearclassifiedasacurrentliabilityontheBalanceSheet.AtFebruary23,1978therewerenobankloansoutstandingand$26.5millionofcommercialpapernotesoutstandingataweightedaveragediscountrateof6.75'/o.SeeNotes12and15toFinancialStatementsforinformationconcerningleasesandcommitmentsandcontingentliabilities.(b)SeeNote6toFinancialStatementsfordetailsconcerningcapitalstock.(c)BasedonassumedproceedstotheCompanyfromthesaleofCommonStockofferedhereby.TheadjustedamountdoesnotincludeproceedsreceivedsubsequenttoDecember31,1977forCommonStocksoldundertheCompany'sdividendreinvestmentplan.(d)AdjustedforestimatedissuanceexpensesfortheCommonStockofferedherebytotaling$150,000anda$6,000amortizationtoEarningsreinvestedofCapitalstockexpenseapplicabletothePreferenceStock,$9.25Series,redeemedinJanuary1978.18
BUSINESSRevenues.During1977,about40'/oofelectricoperatingrevenuescamefromresidentialcustomers,28/ofromindustrialcustomers,27/ofromcommercialcustomersand5/0fromothers.During1977,theCompany'slargestcustomerprovidedabout4.6'/oofelectricoperatingrevenuesandthe27largestindustrialcustomers(eachofwhosebillingsexceeded$1million)providedabout12/0ofsuchrevenues.Industrialcustomersarebroadlydistributedamongindustrialclassifications.PowerSupply.During1977,theCompanyproduced33.4billionkwhinplantsownedbytheCompanyandpurchased0.6billionkwhunderfirmpurchaseagreements.Duringthisperiod,theCompanydelivered12.4billionkwhandreceived1.4billionkwhaspowerpoolinterchange.TheCompany'sMartinsCreekoil-firedUnitNo.4(820,000netkilowattcapability)wasplacedinserviceinMarch1977.TheCompany'spowercapability(winterrating)atDecember31,1977wasasfollows:PlantCoal-FiredMontour.BrunnerIslandSunbury.MartinsCreek.Keystone.Conemaugh..HoltwoodTotalCoa!-Fired.Oil-FiredMartinsCreek.CombustionTurbinesandDiesels..Hydro.TotalGeneratingCapability.....FirmPurchases-Hydro.TotalCapability.NetKilowattCapability1,515,0001,464,000389,000300,000210,000(1)194,000(2)73,0004,145,0001,640,000539,000146,0006,470,00076,000(3)6,546,000(1)Company's12.34/oundividedinterest.(2)Company's11.39/oundividedinterest.(3)FromSafeHarborWaterPowerCorporation.See"BUSINESS-HydroelectricProjects".Approximately37/ooftheCompany'sgeneratingcapabilityatDecember31,1977hasbeenplacedinserviceinthelastfiveyearsand69/ointhelasttenyears.Thecapabilityofgeneratingunitsisbasedupontheoperatingexperienceandphysicalconditionoftheunitsandmayberevisedfromtimetotimetoreflectchangedcircumstances.19 Themaximumone-hourdemandontheCompany'ssystemwas4,431,000kw,whichoccurredonJanuary10,1978.TheCompanyestimatesthatitwouldhaveexperiencedamaximumone-hourdemandof4,514,000kwonJanuary17,1977ifa5/0voltagereductionhadnotbeenineffecttopermitthePennsylvania-NewJersey-Maryland(PJM)Interconnectiontosupplyemergencypowertootherpowerpools.Themaximumone-hoursummerdemandwas3,545,000kw,whichoccurredonAugust29,1977.Forinformationconcerninginterchangepowersales,see"MANAGEMENT'SDISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME"and"ELECTRICSTATISTICS".PowerPool.TheCompanyoperatesitsgenerationandtransmissionfacilitiesasapartofthePJMInterconnection.ThePJMInterconnection,oneoftheworld'slargestpowerpools,includeselevencompaniesservingabout21millionpeopleina50,000squaremileterritorycoveringallorpartofPennsylvania,NewJersey,Maryland,Delaware,VirginiaandWashington,D.C.ThePJMcompanieshadapproximately44.5millionkwofinstalledgeneratingcapacityatDecember31,1977andtransmissionlineconnectionswithneighboringpowerpoolshavethecapabilityofsupplyinganadditional2.1millionkwtoPJMcompanies.ThroughDecember31,1977themaximumone-hourdemandonthepowerpoolwasapproximately32.2millionkw,whichoccurredonJuly21,1977.TheCompanyisalsoapartytotheMid-AtlanticAreaCoordinationAgreementwhichprovidesforthecoordinatedplanningofgenerationandtransmissionfacilitiesbythecompaniesincludedinthePJMInterconnection.FuelSupply.During1977,79/0oftheCompany'senergygenerationcamefromcoal-firedstations,19/0fromoil-firedstationsand2/ofromhydroelectricstations.Anthracite(includingpetroleumcoke)..................BituminousCoal(1).Total.Coal.ThefollowingtabulationshowstheamountofanthraciteandbituminouscoalburnedbytheCompany'sgeneratingstationsduring1977,andtheestimatedrequirementsforcoalovertheremainderoftheexpectedusefullivesoftheCompany'sgeneratingstations.EstimatedBurnedRequirementsDuringOverplantTypeofFuel1977LivesMillionsofTons1.220.010.0235.0112255.0(1)IncludestheCompany'sshareofthebituminouscoalforthejointly-ownedKeystoneandConemaughgeneratingstations.See"BUSINESS-PowerSupply".LaborcontractsbetweenmineownersandtheUnitedMineWorkersofAmericaexpiredonDecember6,1977andastrikestartedonthatdate.ThecurtailmentofcoaldeliverieshasresultedinareductionofcoalinventoriesandhascausedtheCompany,alongwithothermembersofthePJMInterconnection(See"BUSINESS-PowerSupply"),toimplementcertainactionsdesignedtoreducetheuseofcoalandtoextendtheperiodduringwhichtheircoal-firedunitsmaybeoperatedatreducedlevels.PursuanttothePJMcoalstrikecontingencyplan,whichhasbeenfiledwiththevariousregulatorycommissionshavingjurisdictionoverPJMcompanies,theoutputofcoal-firedstationsonthePJMisto20 bereducedto75%ofnormallevelswhencoalinventoriesdropto45dayssupplyand50%ofnormallevelswhencoalinventoriesreach30dayssupply.InaccordancewiththePJMcontingencyplan,theCompanyhasreducedtheoutputfromitsbituminouscoal-firedstationsasfollows:NormalCapabilityDateof%ofNormalStation(kilowatts)RednollonGenersllonMontour.1,515,000February1975%BrunnerIsland.1,464,000January2875%MartinsCreek300,000February1550%Sunbury238,000January2675%Basedoncurrentreducedlevelsofgenerationatitscoal-firedstations,theCompanyestimatesthatatFebruary18,1978itscoalinventorywassufficientforabout44daysofoperation(37daysbasedonnormalgenerationlevels).IfthestrikecontinuessothatbituminouscoallevelsattheBrunnerIsland,MontourandSunburystationsreach30dayssupply,theoutputofthosestationsisexpectedtobereducedto50%ofnormallevels,therebyextendingtheperiodoverwhichthoseunitscanoperate.Basedoncurrentprojectionsandbarringunforeseencircumstances,theCompanyestimatesthatitsgeneratingcapabilitywillbeadequatetopermittheCompanytomeettheenergyrequirementsofitscustomersintoMay1978.Thereceiptofcoalfromsuppliersnotaffectedbythestrike,therelaxationofsulfurdioxideemissionlimitationsby'environmentalagenciestopermittheuseofpetroleumcokeasasupplementtobituminouscoalandmandatoryreductionsofcustomerusagewouldbeexpectedtoextendfurthertheperiodoverwhichthegeneratingcapabilityoftheCompanywouldbesufficienttomeettheenergyrequirementsoftheCompany'scustomers.Inadditiontothereductionoftheoutputfromtheircoal-firedunits,themembersofthePJMInterconnection,includingtheCompany,andvariousgovernmentalauthoritiesareurgingcustomerstovoluntarilyreduceenergyconsumption.MandatoryreductionsofpowerincertainportionsofwesternPennsylvania,whicharenotservedbyPJMcompanies,havebeenapprovedbythePUC.Intheeventthatthestrikeisnotsettledinthenearfuture,furtherreductionsofpowerandinterruptionsofservicemaybemandatedbygovernmentalauthoritiesonawide-scalebasis.ReducedoutputfromtheCompany'scoal-firedunitshasforcedtheCompanytoincreaseitsuseofhighercostoil-firedgeneration(includingcombustionturbines)andhasresultedinlessenergybeingavailablefordeliverytointerconnectedutilities,animportantcontributortonetincomein1977.Atthesametime,theCompanyhashadtoincreaseitspurchasesofpowerfrominterconnectedutilities.WhiletheincreasedcostwhichwillresultfromthegreaterutilizationoftheCompany'soil-firedgenerationisrecoverablethroughfueladjustmentclauses,theCompany'sreducedlevelofinterchangesalesandincreasedpurchasesofpowerfrominterconnectedutilitiesarehavinganadverseeffectonearnings.TheadverseeffectsofthestrikeontheCompany'sgeneratingcapabilityandearningswillbecomemorepronouncedthelongerthestrikecontinues.During1977,36%oftheCompany'scoalsupplywasobtainedfromsubsidiaryminingcompanies(approximatelyone-thirdofwhichwaspurchasedbythosecompaniesintheopenmarket),9%underlong-termcontractsand55%byshort-termcontractsandopenmarketpurchases.AtDecember31,1977,theCompany'sinventoryofanthracitewasabout2.2milliontons.ThebalanceoftheCompany'srequirementsforanthracite,aswellasitsrequirementsforpetroleumcoke, overtheremainderoftheexpectedusefullivesoftheCompany'santhracite-firedgeneratingstationsisexpectedtobeobtainedbytheacquisitionofadditionalanthracitesiltbanksandfromshort-termcontractsandopenmarketpurchases.ThefollowingtabulationliststhebituminouscoalreservesownedorcontrolledatDecember31,1977bytheCompany'ssubsidiary,PennsylvaniaMinesCorporation.Thesereserves,allofwhicharelocatedinPennsylvania,arerecoverablebydeepminingoperations.Theinformationundertheheadings"EstimatedRecoverableReservesasofJanuary1,1976"and"Average/oSulfur(By'l(l/eight)"wasprovidedbyPaulWeirCompanyIncorporatedonthebasisofitsindependentstudiesandtheCompanyhasincludedsuchinformationhereininrelianceuponsuchstudies.TheCompanyhasnotretainedanyotherindependentorganizationtoreviewandreportonitsbituminouscoalreserves.EstimatedRecoverableReservesAverageasof4/aJanuary1,19761977Sulfur(By1976(1)ProductionProductionWeight)(4)ThousandsofTonsAssignedReserves(2)GreenwichOneida.Rushton.Tunnelton.TotalAssignedReserves..~....UnassignedReserves(3)GreeneHill.GreeneManor.66,64921,6387,69410,187106,168159,877162,6821,5852655564032,8091,7532204763782,8272.73.34.51.72.93.3TotalUnassignedReserves...322,559Total.428,7272,8092,827(1)Includesonlyprovenreservesforwhichtonnageiscomputedfromdimensionsrevealedinoutcropdata,mineworkingsanddrillholes.(2)Assignedreservesrepresentcoalwhichcanbeminedonthebasisofcurrentminingpracticesandtechniquesthroughtheuseofmineopeningsandplantfacilitiescurrentlyinexistenceorunderconstruction.(3)Unassignedreservesrepresentundevelopedreservesorreservesthatwouldrequiresubstantialadditionalminingfacilitiesbeforeoperationscouldbegin.(4)Rawcoal,drybasis(priortocleaning).Priorto1976theCompanypurchasedaportionofitscoalrequirementsfromTheOneidaMiningCompany(Oneida),asubsidiaryofTheNorthAmericanCoalCorporation(NorthAmerican),underalong-termcostofproductionsalescontract.InMarch1976,inanefforttocontroltheabnormallyhighcostofcoaldeliveredtotheCompanyfromtheOneidamine,theCompanyassertedacontractualrightto22 takeoverOneida.LitigationwithNorthAmerican,whichcontestedtheCompany'stake-over,wassettledinFebruary1977ontermswhichgavetheCompanyuncontestedcontroloverOneida.WiththeconclusionofthelitigationtheCompanywasabletoexpandthescopeofstudiespreviouslyundertakentodeterminewhatchangesshouldbemadeinOneida'sminingoperations.InSeptember1977,theCompanyadoptedaminingplanwhichprovidesforthecontinuationofsteamcoalminingincertainsectionsoftheOneidamineandthewrite-offofaportionofthedevelopmentcostsincurredfrom1970through1974withrespecttoothersectionsoftheOneidaminewhichhavebeenabandonedorbypassedbecauseofpoorminingconditions.ThesectionsoftheOneidaminethathavebeenabandonedwerenotincludedintheestimateofrecoverablereservesfortheOneidamineshownintheabovetabulation.Thiswrite-off,whichwasnotrecoveredthroughtheapplicationoftheCompany'sfueladjustmentclauses,resultedina$6.6millionreductionoftheCompany'snetincome($.20pershareofCommonStock)fortheyear1977.EffectiveFebruary1,1977theCompanybegantopriceOneidacoalforfueladjustmentclausecalculationpurposesattheaveragecostpertonofcoalproducedbytheCompany'sotheraffiliatedminesratherthanatOneida'shighercost.ThisactionreducedtheCompany'snetincomebyabout$4.3million($.13pershareofCommonStock)duringtheperiodfromFebruarythroughDecember31,1977.TheCompanyestimatesthatitsnetincomewillcontinuetobereducedbyabout$400,000permonthuntiltheCompanydetermineswhethertomakeadditionalinvestmentsforfurtherdevelopmentoftheOneidamine.TheCompanyhadplannedtoreachadecisionwithrespecttotheOneidaminebymld-1978,butbecauseoflostproductiontimeresultingfromthestrikebytheUnitedMineWorkersofAmerica,theCompanyexpectstodelaythatdecisionuntillate1978.IntheeventthattheCompanydeterminestomaketheseinvestments,itisexpectedthatthedifferencebetweenthecostofOneidacoalandtheaveragecostpertonofcoalproducedbytheCompany'sotheraffiliatedmineswillbecapitalizedratherthanbeingincludedinthecurrentcostofcoal.Theamountcapitalizedwouldbereflectedinthecostofcoalaftertheminewasfullydeveloped.However,ifadverseminingconditionspreventthefurtherdevelopmentoftheOneidamine,miningoperationsmaybeterminatedandadditionallossesincurred.AtDecember31,1977andaftergivingeffecttotheSeptember1977write-off,theaggregatecapitalinvestmentinOneida'sfacilities(includingleaseobligations)amountedtoabout$35million,substantiallyallofwhichwasguaranteeddirectlyorindirectlybytheCompany.rTheCompanyhasalong-termcontractwithabituminouscoalsupplier(LadyJane)underwhichthesupplierisobligatedtodeep-mineitsreservestoexhaustion.ProductionattheLadyJanemineamountedto185,000tonsduring1977.Run-of-minecoalfromtheLadyJaneminehasanaveragesulfurcontentofabout3.5%%d.ThecoalburnedintheCompany'sgeneratingstationscontainsbothorganicandpyriticsulfur.Mechanicalcleaning~processesinstalledattheminesarebeingutilizedtoreducethepyriticsulfurcontentofthecoal.ThereductionofthepyriticsulfurcontenthasloweredthetotalsulfurcontentofthecoalburnedtolevelswhichpermitcompliancewithcurrentsulfurdioxideemissionregulationsestablishedbythePennsylvaniaDepartmentofEnvironmentalResources(DER).See"BUSINESS-EnvironmentalMatters".TheregulationsapplicabletotheCompany'sgeneratingstationsgenerally,limitthetotalsulfurcontentofcoaltonotmorethan2.5/o.Coalobtainedundershort-termcontractsandbyopenmarketpurchasescurrentlyhasanaveragesulfurcontentofabout2.2'/o.23
/TheCompanyownsa12.34/oundividedinterestintheKeystonestationandan11.39'/oundividedinterestintheConemaughstation,bothofwhicharemine-mouthgeneratingstationslocatedinwesternPennsylvania.TheownersoftheKeystonestationhavealong-termcontract,whichmaybeextendedthrough2012,withasupplierfor90koftheannualbituminouscoalrequirementsoftheKeystonestation.TheownersoftheConemaughstationhavealong-termcontractwithanothersupplierforatleast80/ooftheannualbituminouscoalrequirementsoftheConemaughstationforthelifeofthestation.Totheextentthattherequirementsoftheseplantsarenotcoveredbylong-termcontracts,thebituminouscoalrequirementsare,withminorexceptions,obtainedfromlocalsuppliers.TheCompanyexpectsthatassignedreservesandlong-termcontractswillprovide40'/oto50'/oofitsprojectedbituminouscoalrequirementsduringthenextfiveyears.Thebalanceoftheserequirementswillhavetobeobtainedundershort-termcontractsorbyopenmarketpurchases.Theextenttowhichunassignedreservesmayeventuallybeminedtomeetthefuelrequirementsoffuturegeneratingstationswilldependuponfutureeconomicconditionsandotherfactorswhichcannotnowbepredicted.Excludingmine-mouthplantrequirements,about83/ooftheCompany'sbituminouscoalpurchasedduring1977wasdeliveredbytheCompany'sunittrains,whichatDecember31,1977consistedof980.hoppercars.UseoftheCompany'shoppercarsfordeliveryofcoalminimizestheCompany'sdependenceuponrailroad-suppliedhoppercarswhichfromtimetotimeareinshortsupply.Theaveragedeliveredcostofcoalhasincreasedsubstantiallyoverthepastseveralyearsfrom$11.89pertonin1973to$25.72pertonduring1977.Theaveragedeliveredcostofcoalpurchasedduring1977wasasfollows:bituminouscoalpurchasedfromsubsidiarycompanies(includingcoalpurchasedbythosecompaniesintheopenmarket)andunderlong-termcontracts,$30.64perton;bituminouscoalpurchasedbytheCompanyundershort-termcontractsandintheopenmarket,$24.20perton;andanthracite,includingpetroleumcoke,$11.31perton.BituminouscoalpurchasedintheopenmarketbytheCompanyanditssubsidiariesisprimarilysurface-mined.BituminouscoalproducedbysubsidiarycompaniesandpurchasedbytheCompanyunderlong-termcontractsisdeep-mined.Oil.Thetwo820,000kwoil-firedgeneratingunitsattheCompany'sMartinsCreekstationaredesignedtoburneithercrudeorresidualoilandtofollowsignificantloadchangesoroperateasbaseloadunits.JTheCompanyhascontractedwithoilsuppliersfortheexpectedrequirementsoftheMartinsCreekoilunitsthrough1979.Anagreementwithoneofthesuppliers,underwhichtheCompanycanpurchaseuptothree-quartersofitsexpectedoilrequirementsfortheseunits,providesforautomaticannualrenewalsbeyond1979unlessterminatedupononeyear'spriorwrittennoticebyeitherparty.OilfortheMartinsCreekstationisdeliveredtoadeepwaterterminalontheDelawareRiveratMarcusHook,Pennsylvania.TheCompanyhasalong-termcontractwithanunaffiliatedcompanytoprovideunloadingandoilstorageservicesatthatterminal.TheoilistransportedfromMarcusHooktostoragefacilitiesattheMartinsCreekstationbyapipelinewhichwasconstructedprimarilyfortheuseoftheCompanybyitssubsidiary,InterstateEnergyCompany(IEC).Thepipelineandrelatedfacilities,substantiallytheonlyassetsofIEC,wereplacedinserviceatacostofapproximately$55million.Ofthatamount,$40.5millionwasobtainedfromtheCompanyandthebalancewasborrowedfrombanks.The.Companyexpectstoformalizeitsobligationsfortheoperatingexpensesandannualcarryingchargesofthepipelineinconnectionwiththepermanentfinancingofthesefacilitiesin1978.FERCandPUCtariffsareineffectforthedeliveryofoilbyIECfromMarcusHooktoMartinsCreek.24 k TheCompanyandIEChavearrangedtoprovidepipelinedeliveryservicestoanotherutilitybeginninginmid-l978.Pipelinedeliveryservicesmaybeavailablefromthedeepwaterterminaltootherdeliverypointsatlocationsandtariffrateswhichhavenotyetbeenestablished.Nuclear.TheCompanypresentlyhasunderconstructiontwonuclear-fueledgeneratingunitsatitsSusquehannasite.See"CONSTRUCTIONPROGRAM".Inanticipationofthecommercialoperationoftheseunits,theCompanyhasmadecommitmentstomeetcertainofthenuclearfuelcyclerequirementsfortheseunits.,Thenuclearfuelcycleconsistsoftheminingandmillingofuraniumoretouraniumconcentrate;theconversionofuraniumconcentratetouraniumhexafluoride;theenrichmentofuraniumhexafluoride;thefabricationoffuelassemblies;theutilizationofnuclearfuelinthereactor;temporarystorageofspentfuel;andthereprocessingorpermanentdisposalofspentfuel.Baseduponthepresentlyscheduledin-servicedatesandplannedfuelcyclesfortheseunitsthefollowingtabulationshowstheyearthroughwhichcontractsareexpectedtoprovidetheSusquehannastation'srequirementsforthevarioussegmentsofthenuclearfuelcycle,assumingthatsuppliersmeettheircontractualcommitments.SusquehannaUnit1.....SusquehannaUnit2.....UraniumConcen-trate(1)(2)19831983Conversion19851985Enrichment20072009Fabriaalion19941994Reprocess-ing(3)19921992(1)TheCompanyhasanoptiontopurchaseaportionofasupplier'sproductionfortheyears1984-1990which,ifexercised,willprovideaportionoftheCompany'suraniumconcentraterequirementsforthatperiod.(2)Theuraniumconcentratesscheduledtobedeliveredthrough1983areexpectedtobesufficienttopermittheoperationoftheSusquehannaunitsthrough1985.UnderitsenrichmentcontractswiththeCompany,theDepartmentofEnergy(DOE)maymakechangesinenrichmentspecifications.SuchchangesmaynecessitatetheacquisitionbytheCompanyofadditionalquantitiesofuraniumconcentrateduringtheperiodsindicatedinthetabulation.(3)TherearecurrentlynocommerciallyoperatingfacilitiesintheUnitedStatesforthereprocessingofspentfuel.ShipmentsfromSusquehannatothereprocessorwereinitiallyscheduledtobeginintheearly1980sfollowingtheexpansionofthereprocessor'sfacility.ThereprocessorhasinformedtheCompanythatbecauseoftheincreasedcapitalandoperatingcostsexpectedtobeincurredtocomplywithNRCcriteriarelatingtotheexpansion,thereprocessordoesnotintendtocontinueinthatbusinessandisseekingtoteiminatethecontractwithrespecttotheSusquehannaunits.TheCompanyestimatesthattherewillbesufficientstoragecapabilityinthespentfuelpoolsatSusquehannatoaccommodatethefuelthatisexpectedtobedischargedthrough1984.BecausetheCompanydoesnotcurrentlyanticipatebeingabletoshipspentfueloff-siteby1985forstorageorreprocessing,theCompanyisdevelopingplanstoinstalladditionalspentfuelstoragecapacityintheSusquehannaspentfuelpools.InApril1977PresidentCarterstatedthathewoulddeferindefinitelythecommercialreprocessingofspentnuclearfuelandtherecyclingoftheplutoniumproducedindomesticandforeignnuclearpowerprograms.BasedinpartonPresidentCarter'sstatements,theNRChas25 'Pp ,terminateditsrulemakingproceedingregardingtherecyclingofspentfuel.InOctober1977DOE,proposedapolicyunderwhichtheFederalGovernmentwouldtaketitletospentnuclearfuelfromelectricutilitiesonpaymentofafeeandassumeresponsibilityforitsinterimstorageandultimatedisposal.Additionalarrangements,forwhichthereisnopresentassurance,willberequiredtosatisfythefuelrequirementsoftheSusquehannaunitsovertheirestimatedusefullives.Regulation.TheCompanyisapublicutilityunderthelawsoftheCommonwealthofPennsylvaniaandissubjecttoregulationassuchbythePennsylvaniaPublicUtilityCommission.TheCompanyissubjectincertainofitsactivitiestothejurisdictionoftheFederalEnergyRegulatoryCommissionunderPartsI,IIandIIIoftheFederalPowerAct.TheCompanyisaholdingcompanyunderthePublicUtilityHoldingCompanyActof1935buthasbeenexemptedbytheSecuritiesandExchangeCommissionfromtheprovisionsofthatActapplicabletoitasaholdingcompany.TheCompanyissubjecttothejurisdictionoftheNuclearRegulatoryCommissioninconnectionwiththeconstructionoftheSusquehannaunits.See"CONSTRUCTIONPROGRAM".TheCompanyisalsosubjecttothejurisdictionofcertainFederal,regional,stateandlocalregulatoryagencieswithrespecttoairandwaterquality,landuseandotherenvironmentalmatters.See"BUSINESS-EnvironmentalMatters".ThecoalminingoperationsoftheCompany'ssubsidiariesaresubjecttotheFederalCoalMineHealthandSafetyActof1969.ProposedEnergyLegislation.AconferencecommitteeofCongress'currentlyisconsideringlegislationdesignedtoachieveenergyconservationthroughtheapplicationofvariousregulatoryandtaxmeasuresandtoencouragethedevelopmentanduseofrelativelyabundantdomesticfuels-primarilycoal.Theconferencecommitteehastentativelyagreedtorequirestatepublicutilitycommissionstoconsidercertainratedesignstandards.TheCompanyisunabletopredictwhatmeasures,ifany,willultimatelybeenactedorwhateffectanymeasuresenactedwillhaveontheCompany.EnvironmentalMatters.TheCompanyissubjecttocertainpresentanddevelopingFederal,regional.stateandlocallawsandregulationswithrespecttoairandwaterquality,landuseandotherenvironmentalmatters.Exceptasdescribedbelow,theCompanyispresentlyinsubstantialcompliancewithapplicableenvironmentallawsandregulationsandhasallofthepermitscurrentlyrequiredtooperateitsfacilities.Air.TheFederalCleanAirActAmendmentsof1977(1977Amendments)include,amongotherthings,provisionsthat:(a)requirethepreventionofsignificantdeteriorationofexistingairqualityinregionswhereairqualityisbetterthanapplicableambientstandards;(b)restricttheconstructionofnewemissionsources,includingcoal-firedandoil-firedgeneratingstations,inareaswhichhavenotattainedspecifiedambientairqualitystandards;(c)revisethestandardsofperformanceapplicabletonewemissionsourcesandrequirethatnewfossilfueledgeneratingunitsachievetherevisedstandardsbytheapplicationofthebestavailablecontroltechnologywhichreqUirement,ineffect,appearstoprohibittheuseoflowsulfurcoalatnewemissionsourceswithoutfurthertreatment,suchasthecleaningofcoalortheuseofscrubbers;and(d)requiretheUnitedStatesEnvironmentalProtectionAgency(EPA)toimposesubstantialnon-compliancepenaltiesforfailuretocomplywithairpollutionregulationsafterJuly1,1979andprovidefornewcivilpenaltiesofupto$25,000perdayofviolationforfacilitiesfoundtobeinviolationoftherequirementsofanapplicableimplementationplan.26 UnderproceduresestablishedbythePennsylvaniaDepartmentofEnvironmentalResources(DER)priortothe1977Amendments,companiesnotincompliancewithemissionregulationshavebeenpermittedtoenterintoconsentorderswithDERwhichallowcontinuedoperationoffacilitiesduringthetimeinwhichstepsarebeingtakentoachievecompliance.Inthisregard,theCompanyandtheDERhaveenteredintoaconsentorderwithrespecttoparticulateemissionregulationsasfollows:1UnitComptianceDateBrunnerIslandNo.1.December31,1980BrunnerIslandNo.3.June30,1981MontourNo.1.June30,1981MontourNo.2December31,1980Asaresultofthe1977Amendments,theCompanyexpectstoenterintoanewconsentorderwithDERwhichwillestablishnewcompliancedatesofnotlaterthanJuly1,1979fortheMontourunits.TheCompanycurrentlyanticipatesthattheinstallationoffluegasconditioningequipmentattheMontourunitsandadditionalfuelqualitycontrolequipmentorproceduresattheCompany'saffiliatedmineswillpermittheCompanytoachievecomplianceattheMontourunitsbyJuly1,1979.TheCompanyalsoexpectstoenterintoanewconsentorderwithDERfortheBrunnerIslandunits.SincetheCompanyhasbeenproceedingonaschedulewhichwasdesignedtoachievecomplianceattheBrunnerIslandunitsbythedatesshowninthetabulation,theCompanywillnotbeabletoachievecomplianceattheseunitsbyJuly1,1979.Asaresult,itisexpectedthatthecompliancedatesestablishedbythenewconsentorderfortheBrunnerIslandunitswillremainunchangedfromthatshownlnthetabulation.AlthoughtheamountoftheCompany'spaymentstothePennsylvaniaCleanAirFundpursuanttothenewconsentordershasnotbeendetermined,theCompanyexpectsthatthepaymentswillbesubstantiallyinexcessof$3,500permonthwhichisbeingpaidpursuanttothecurrentconsentorder.Becauseofnon-complianceoftheBrunnerIslandandMontourunits,theCompanymaybesubjecttosubstantialnon-complianceandcivilpenaltiesunderthe1977Amendmentsinamountswhicharenotnowdeterminable.TheCompanyandDERarecurrentlydiscussingaconsentorderforUnitNo.4attheCompany'sSunburystation.TheCompanyexpectsthatanyconsentorderwouldpermittheCompanytocontinuetooperatetheunitduringthetimeinwhichtheCompanyistakingstepstoachievecompliancewithDERparticulateemissionregulations,AlthoughitcurrentlyexpectsthatUnitNo.4attheSunburystationcanbeincompliancewithapplicableDERstandardsbyJuly1,1979theCompanymaybesubjecttofinesorpenalties,includingfinesorpenaltiesunderthe1977Amendments,duringtheperiodofnon-compliance.TheCompany'srequestforanoperatingpermitforSunburyUnitNo.3iscurrentlypendingbeforeDER.InJuly1977EPAnotifiedtheCompanyofanallegedviolationattheCompany'sHoltwoodsteamstationofopacityparticulateemissionregulationsestablishedbyDER.FollowingdiscussionswithDERandEPA,theCompanyinJanuary1978agreedtoinstalladditionalemissioncontrolfacilitiesattheHoltwoodstation.Itlsexpectedthatthesefacilitieswillnotbeabletobeplacedinservicebeforemid-1981andthattheCompanymaybesubjecttofinesandpenaltiesforfailuretomeettheJuly1,1979compliancedateestablishedbythe1977Amendments.TheCompany'sestimateofconstructionexpendituresfortheyears1978-1980includesestimatedexpendituresduringthatperiodtoachievecompliancewithDERparticulateemissionregulationsattheBrunnerIsland,Montour,SunburyandHoltwoodUnits.See"CONSTRUCTIONPROGRAM".27 llpl TheprocessingofcoaltoreducethesulfurcontentpriortoburningpermitstheCompanytocomplywithcurrentsulfurdioxideemissionregulations.If,however,thesulfurdioxideemissionregulationsapplicabletotheCompany'sexistinggeneratingstationsareamendedtosignificantlyreducepermissibledischarges,theCompanymayberequiredtofurtherreducethesulfurcontentofthecoalpriortoburningorinstallequipmentfortheremovalofsulfurdioxidefromfluegases.DERhasproposedregulationswhich,ifadopted,couldhavetheeffectoflimitingthesulfurdioxideemissionsfromtheCompany'sSunburystation.CompliancewithsuchregulationscouldbeexpectedtorequiretheCompanytomakeadditionalexpendituresattheSunburystationinamountswhicharenotnowdeterminable.VYater.Tomeetthestandardof"bestpracticablecontroltechnologycurrentlyavailable"establishedbytheFederalWaterPollutionControlAct,asamendedinDecember1977(WaterAct),theCompany'scoalminingsubsidiariesareplanningtoinstallwastewatertreatmentequipmentatcertainoftheirfacilitiesandhavefiledthenecessaryapplicationswithDER.ThefailurebythesubsidiariestomeettheWaterActstandardbyJuly1,1977maysubjectthesubsidiariestofinesandpenaltieswhicharenotexpectedtobematerialinamount.TheWaterActrequirestheapplicationofthe"bestavailabletechnologyeconomicallyachievable"byJuly1,1984withrespecttocertaindischargesfromexistingfacilitiesandauthorizesEPAtoestablishdischargelimitationsandcomplianceschedulesforcertainotherpollutants.Withrespectto"new"facilities,theWaterActauthorizesEPAtoestablishstandardsofperformancewhichwillrequiretheapplicationofthe"bestavailabledemonstratedcontroltechnology".TheWaterActalsorequiresthatthelocation,design,constructionandcapacityofcoolingwaterintakestructuresreflecttheapplicationofthe"besttechnologyavailableforminimizingadverseenvironmentalimpact".EPAhasadoptedeffluentlimitations,guidelinesandstandardsforsteamelectricstationsandguidelinesforexistingcoalmines.EPAlimitations,guidelinesandstandardsareenforcedthroughtheissuanceofdischargepermitswhichspecifytheapplicablelimitationsondischarges.Compliancewithapplicablestateandregionalwaterqualitystandardsisaccomplishedbyrequiringtheappropriatestateorinterstateagencytoissueawaterqualitycertificationwithrespecttoeachapplication.ThetermsandconditionsofanysuchwaterqualitycertificationmustbeincorporatedinthedischargepermitissuedbyEPA.EPAhasissueddischargepermitsfortheoperationoftheCompany'sgeneratingstationsandforconstructionactivitiesattheSusquehannastation.ApplicationsfordischargepermitsforthesewagetreatmentplantattheMontoursvilleservicecenterandthecoalminingoperationsoftheCompany'ssubsidiariesarependingbeforeEPA.DERhasissuedtherequiredwaterqualitycertificationforthePennsylvaniaMinesCorporation(PMC)dischargepermits.TheCompanybelievesthatcertaindischargelimitationscontainedintheDERcertificationfortheMontourstationaremorestringentthanthoseestablishedbyapplicableguidelinesandregulationsandhasrequestedahearingbeforeDERconcerningtheselimitations.DERalsoadministersstateandcertainregionallawsandregulationswithrespecttoeffluentdischargesandwaterquality.TheCompanyandDERarealsodiscussingthenecessityofinstallingadditionalwatertreatmentfacilitiesatcertainoftheCompany'splants.RegulationsadoptedbytheDepartmentofInterior'sOfficeofSurfaceMining,ReclamationandEnforcementpursuanttotheSurfaceMiningControlActof1977,whichalsoappliestothedisposalofrefusefromundergroundmines,areexpectedto,delaytheissuancebyDERofacoalrefusedisposalpermitforPMCandmayrequireadditionalexpendituresatPMCinamountswhicharenotnowdeterminablebutwhichmaybesubstantial.28 DelawareRiverBasinCommissionapprovaloftheCompany'swaterwithdrawalpermitfortheoil-firedunitsattheMartinsCreekstationrequirestheCompanytoprovidemake-upwateratcertaintimesor-tocurtailoperationoftheseunitsduringcertainperiodsoflowflowintheDelawareRiver.ItistheCompany'sintentiontosupplytherequiredmake-upwaterfromitsLakeWallenpaupackhydroelectricproject.See"BUSINESS-HydroelectricProjects".TheregulationsoftheSusquehannaRiverBasinCommissionrequirethatwaterusersprovidemake-upwaterduringcertainperiodsoflowflowintheSusquehannaRiver.InconnectionwiththeconstructionoftheSusquehannastation,theCompanyisconsidering,amongotheralternatives,theconstructionofareservoirtoprovidemake-upwater.PreliminaryenvironmentalandengineeringfeasibilitystudieswithrespecttothereservoirhavebeenundertakenbytheCompanyandtheCompanyestimatesthatthecostofthisreservoirwouldapproximate$45million.TheCompany'sshareofsuchcostduringtheyears1978-1980isincludedinitsestimateofconstructionexpendituresforthatperiod.See"CONSTRUCTIONPROGRAM".'In1974theBoroughofTremont,Pennsylvania,andseveralresidentsoftheBoroughofTremontcommencedasuitagainsttendefendants,includingtheCompany,intheCourtofCommonPleas,SchuylkillCounty,Pennsylvania.Thecomplaintinthisproceeding(whichpurportstobeaclassactiononbehalfofallresidentsoftheBoroughofTremont)alleges,amongotherthings,thatthefailureofthedefendantstocomplywiththeprovisionsofvariousFederalandstateenvironmentallawsinconnectionwiththemaintenanceofcertainculmandsiltbanksinthevicinityoftheBoroughofTremontcausedtheplaintiffsnamedinthecomplainttosufferdamagesofapproximately$1.3millionduringthefloodingresultingfromTropicalStormAgnes.InJuly1977GoldMills,Inc.commencedasuitagainstthesamedefendantscontainingsimilarallegationsandclaimingdamagesof$3.6million.Plaintiffsinbothproceedingsareseekingtorecoverpunitivedamagesinunspecifiedamounts.Nuc/ear.TheU.S.CourtofAppealsfortheDistrictofColumbiainJuly1976announceddecisionsintwocasestowhichtheCompanywasnotapartyconcerningthescopeoftheNRCenvironmentalreviewofnuclearplants.InonedecisiontheCourtheldthattheNRCmustgivefurtherconsiderationinallcasestotheenvironmentalimpactofthereprocessingofspentfuelandthedisposalofradioactivewastematerial.InOctober1976theNRCinitiatedrulemakingproceedingstoevaluatefurthertheenvironmentalimpactofreprocessingandwastedisposalandinMarch1977theNRCadoptedaninterimrulerelatingtothesematters.InAugust1977,initsdecisionterminatingtheshowcauseproceedingsinitiatedbyanenvironmentalgrouptohalttheconstructionoroperationof14nuclearfuelunitsinPennsylvaniaandNewJersey,includingtheSusquehannaunits,theNRCAppealPanelconcludedthattheapplicationoftheinterimrulewouldnotsignificantlyaffectthecostbenefitanalysisfortheSusquehannaunits.AfurtherproceedingrelatingtoafinalrulewithrespecttotheenvironmentalimpactofthereprocessingofspentfuelandthedisposalofradioactivewastematerialiscurrentlypendingbeforetheNRC.ItisexpectedthattheresultsoftheNRCrulemakingproceedingswillserveasabasisforthecostbenefitanalysisrequiredbytheNationalEnvironmentalPolicyActof1969inconnectionwiththeissuanceofoperatinglicensesfornuclearplantsincludingtheSusquehannaunits.IntheotherdecisiontheCourtheldthattheNRCmustconsiderenergyconservationasanalternativetotheconstructionofnuclearplantsinlicensingproceedingswhereenergyconservation(inadditiontoalternativemeansofgeneratingpower)israisedasanissue.Sinceenergyconservationisconsideredinconnectionwithindividuallicensingproceedings,theNRChasnotinitiatedarulemakingproceedingwithrespecttothesematters.TheSupremeCourthasgrantedreviewofbothCourtofAppealsdecisions.TheactionoftheNRCinMarch1977inadoptingtheinterimrulerelatingtotheenvironmentalimpactoffuelreprocessingand29 wastedisposalhasbeenappealedtotheU.S.CourtofAppealsfortheDistrictofColumbia.TheCompanyisunabletopredictwhatfurtheractionsmaybetakenbytheNRCortheCourtswithrespecttoanyofthesemattersortheeffectthatsuchactionsoractionsbyenvironmentalagenciescouldhaveonthecostorin-servicedatesoftheSusquehannaunits.See"CONSTRUCTIONPROGRAM".General.Duringtheperiod1973through1977,theCompany'sconstructionexpendituresaggregatedabout$1.61billion,ofwhichtheCompanyestimatesthatabout$83millionwasforcompliancewithFederal,stateandlocalenvironmentallawsandregulations.Approximately$150millionofcapitalexpendituresforsuchcomplianceareincludedintheCompany's1978-1980constructionprogramanditmaybethatsubstantialadditionalexpendituresforsuchpurposesinanamountnotnowdeterminablewillberequiredduringsuchperiodandthereafter.FromtimetotimetheCompanyanditssubsidiarieshavebeencitedforviolationsofDERandEPAairandwaterqualityregulationsinconnectionwiththeoperationoftheirfacilitiesand,asaresult,maybesubjecttocertainpenaltieswhicharenotexpectedtobematerialinamount.TheCompanyisunabletopredicttheultimateeffectofdevelopingenvironmentallawandregulationuponitsexistingandproposedfacilitiesandoperations.However,itispossiblethatsuchlawandregulationmayrequiretheCompanytomodify,supplement,replaceorceaseoperatingitsequipmentandfacilities,delayorimpedeitsconstructionandoperationofnewfacilities,andrequireittomakesubstantialadditionalexpendituresInamountswhicharenotnowdeterminable.HydroelectricProjects.TheCompanyoperatestheHoltwoodhydroelectricproject(102,000kwcapability)andtheWallenpaupackhydroelectricproject(44,000kwcapability),theoriginallicensesforwhichexpiredin1970and1974,respectively.PendingfinalactionontheCompany'sapplicationsfornewlong-termlicensesforbothprojects,FERChasgrantedtheCompanyinterimannuallicensestooperatetheprojects.Theinterimannuallicensesincorporatethetermsandconditionsoftheoriginallong-termlicenses.TheCompany'sHoltwoodapplicationisbeingopposedbyamunicipalelectricsystem.TheHoltwoodandWallenpaupackprojectsrepresentcurrentinvestmentsonadepreciatedoriginalcostbasisof$9.6millionand$10.1million,respectively.TheFederalPowerActprovidesthatif,uponexpirationofamajorprojectlicense,theUnitedStatestakesovertheprojectoralicensefortheprojectisissuedtoanewlicensee,theoriginallicenseeshallbepaidthe"netinvestment"intheproperty,nottoexceedfairvalue,plusseverancedamages,ifany.CertainreserveswhicharerequiredbytheActandwhichrelatetothecalculationof"netinvestment"havenotbeenrecordedpendingapprovaloftheamountsthereofbyFERC.InApril1977,FERCissuedaproposedrulemakingwhich,ifadopted,wouldrequirealicenseetorecordthesereservesbyanappropriationofearningsreinvested.Theamountofearningsreinvestedsoappropriatedwouldberestrictedastothepaymentofdividends.TheCompanyestimatesthatsuchreservesapplicabletotheperiod1946throughDecember31,1977wouldnotexceed$3.1millionforitstwolicensedprojects.TheCompanyalsoownsone-thirdofthecapitalstockofSafeHarborWaterPowerCorporation(SafeHarbor)whichholdsamajorprojectlicensefortheoperationofitshydroelectricplant(230,000kwcapability).TheCompanyisentitledtoone-thirdofthecapacity(76,000kw)oftheSafeHarborplant.TheSafeHarborlicenseexpiresin1980.InApril1977SafeHarborfiledanapplicationwithFERCforanewlong-termlicenseandtheproposedinstallationoffiveadditional37,500kwunits.TheadditionalunitswillincreasethetotalcapabilityoftheSafeHarborplantto417,500kwandtheCompanywillbeentitledtoone-thifdofthetotalcapacity(139,167kw)..30 ELECTRICSTATISTICS19731974197519761977PowerCapability(thousandsofkw)Coal-firedsteamstationsOil-firedsteamstation..Combustionturbinesanddiesels........................Hydroelectricstations..Firmpurchases(hydro).Total..WinterPeakDemand(thousandsofkw)(a).................SourcesofEnergy(millionsofkwh)GeneratedCoal-firedsteamstations.Oil-firedsteamstation.Combustionturbinesanddiesels.................Hydroelectricstations..Powerpurchases..Total.DispositionofEnergy(millionsofkwh)Energysalestocustomers.Interchangepowersales(b)..Companyusesandlinelosses......Total..FuelCostofEnergyGenerated(centsperkwh)..........CostofCoalReceived,includingfreightandhandlingcost(perton).EnergySales(millionsofkwh)Residential.Commercial.Industrial...Other.Total.OperatingRevenues(thousands)Residential.Commercial.Industrial..OtherTotal.NumberofCustomers(endofperiod)........................AverageUsePerResidentialCustomer(kwh).............AverageRevenue(centsperkwh)Residential.Commercial.Industrial..Allcustomers..TotalOperatingExpensesperkwhofEnergySales(centsperkwh)(b)...4,140541146764,9033,6624,140539146764,90137724,136820539146765,7174,1224,136820539146765,7174,4254,1451,640539146766,5464,43124,7822738161,96827,83918,8657,2371,73727,8390.5024,1862477721,57026,77518,9636,0791,73326,7750.8825,3841,149848592,24129,71719,1138,7571,84729,7171.04"25,7511,947408092,12630,67320,3548,3581,96130,6731.1726,2996,2711157351,97735,39721,20112,4331,76335,3971.356,3244,2626,8811,39818,865$154,681101,67099,92825,868$382,147886,3788,2536,4944,2757,1701,02418,963$187,265121,314131,45227,539$467,570902,1488,2876,8184,5757,02070019,113$218,904143,673150,36525,686$538,628917,9208,5287,2674,8747,48173220,354$257,828170,990180,95729,949$639,724936,2198,9317,5395,2117,69775421,201$296,179201,639209,52733,183$740,528954,6139,0632.452.391.452.002.882.841.832.443.213.553.143.512.142.422.783.103.933.872.723.451.521.882.212.492.64$11.89$20.80$23.38$25.36$25.72Note:StatisticsoftheCompanyandHersheyElectricCompanyareconsolidatedsinceJanuary1,1977.(a)Winterpeakshownwasreachedearlyinsubsequentyear.TheCompanyestimatesthatitwouldhaveexperiencedapeakfor1976of4,514,000kwifa5/ovoltagereductionhadnotbeenineffect.(b)Asprovidedintheapplicableregulatorysystemofaccounts,receiptsfrominterchangepowersaleshavebeentreatedasreductionsofoperatingexpenses.31 DESCRIPTIONOFCOMMONSTOCKTheoutstandingCommonStockis,andtheCommonStockofferedherebywhenissuedandpaidforwillbe,fullypaidandnon-assessable.ThefollowingisasummaryofcertainprovisionsoftheCompany'sArticlesofIncorporationandmortgages,copiesofwhichareexhibitstotheRegistrationStatement.DividendRights.SubjecttotheArticlesofIncorporationandmortgagerestrictionsondividendsreferredtobelowandtothepreferentialrightsofthePreferredStockandPreferenceStock,dividendsmaybedeclaredontheCommonStockoutoffundslegallyavailableforthepaymentthereof.DividendRestrictions.TheCompany'sArticlesofIncorporationprovidethatnodividends(otherthandividendspayablebytheissuanceofCommonStock)on,orpurchasesoracquisitionsof,ordistributionson,theCommonStockshallbepaidormadebytheCompanyaggregatinganamountinexcessof(a)75'/oofthecurrentyear'searningsotherwiseavailableforCommonStock,ifaftersuchpayment,purchase,acquisitionordistributiontheratiooftheaggregateofthestatedvalueofCommonStockandearningsreinvestedtototalcapitalization,includingearningsreinvested,willbelessthan25'/0,and(b)50'/oofsuchearnings,ifaftersuchpayment,purchase,acquisitionordistribution,suchratiowillbelessthan20/o.AtDecember31,1977therewerenorestrictionsonthepaymentofdividendsoutofearningsreinvested.TheCompany'smortgagecontainsaprovisionwhich,ingeneral,restrictsthepaymentofCommonStockdividendsincashiftheeffectthereofwillbetobringtheaggregateofearningsreinvestedplustheprovisionsfordepreciationtoapointbelowthemaintenanceandreplacementfundrequirementswhichhavenotbeensatisfiedbyactualexpenditures.SuchprovisiondidnotresultintherestrictionofanyportionofearningsreinvestedoftheCompanyatDecember31,1977.AnassumedmortgageontheformerScrantonElectricCompanypropertiesacquiredbymergerin1956alsocontainsrestrictionsonthepaymentofCommonStockdividendswhichdonotlimittheavailabilityofearningsreinvested.VotingRights.Exceptashereinafterotherwisesetforth,theholderofeachshareofPreferredStock,PreferenceStockandCommonStockhasonevoteonanyquestionpresentedtoanyshareowners'eeting,amajorityinnumberofsharesregardlessofclassbeingconsideredamajorityinvalueorininterestwithinthemeaningofanystatuteorlawrequiringtheconsentofshareownersholdingamajorityininterestoragreateramountinvalueofstockoftheCompany.IfandwhendividendspayableonanyPreferredStockshallbeinarrearsinanamountequivalenttotheannualdividendrateormorepershareandthereafteruntilalldividendsonthePreferredStockinarrearsshallhavebeenpaid,theholdersofthePreferredStock,votingasasingleclass,shallbeentitledtoelectamajorityofthefullBoardofDirectors,andtheholdersofthePreferenceStockandCommonStock,votingseparatelyasaclass,andsubjecttotherightsoftheholdersofPreferenceStockasdescribedbelow,shallhavetheright'oelecttheremainingdirectors.IfandwhendividendspayableonthePreferenceStockshallbeinarrearsinanamountequivalenttooneandone-halftimestheannualdividendrateormorepershareandthereafteruntilalldividendsonthePreferenceStockinarrearsshallhavebeenpaid,theholdersofthePreferenceStockvotingasasingleclass(andsubjecttorightsofholdersofPreferredStock)shallbeentitledtoelecttwodirectors.UnderPennsylvanialaw,allshareownersoftheCompanyhavetheunconditionalrightofcumulativevotingintheelectionofdirectors.32 LiquidationRights.AftersatisfactionofthepreferentialliquidationrightsofthePreferredStockandthePreferenceStock,theholdersoftheCommonStockareentitledtoshare,ratably,inthedistributionofallremainingassets.SeeNote6toFinancialStatementsfor.theliquidationpreferencesofthePreferredStockandPreferenceStock.PreemptiveRights.TheholdersofCommbnStockdonothavepreemptiverightsastoadditionalissuesofCommonStock.CertainTaxMatters.IntheopinionofEdwardM.Nagel,Esq.,GeneralCounseloftheCompany,theCommonStockisexemptfromexistingpersonalpropertytaxesinPennsylvania.Listing.TheCommonStockislistedontheNewYorkandPhiladelphiaStockExchanges.TransferAgentsandRegistrars.TheTransferAgentsarecertainemployeesoftheCompany,IndustrialValleyBankandTrustCompany,Allentown,Pa.,andIrvingTrustCompany,NewYork,N.Y.TheRegistrarsareTheFirstNationalBankofAllentown,Pa.,andMorganGuarantyTrustCompanyofNewYork,N.Y.EXPERTSThebalancesheetsasofDecember31,1976and1977andtherelatedstatementsofincome,earningsreinvested,andchangesinfinancialpositionforeachofthefiveyearsintheperiodendedDecember31,1977includedinthisProspectushavebeenexaminedbyHaskins8Sells,independentCertifiedPublicAccountants,asstatedintheiropinionappearingherein,andhavebeensoincludedin,relianceuponsuchopiniongivenupontheauthorityofthatfirmasexpertsinaccountingandauditing.InformationinthetabulationoftheAssignedReservesandUnassignedReservesundertheheadings"EstimatedRecoverableReservesasofJanuary1,1976"and"Average/oSulfur(ByWeight)"underthecaption"BUSINESS-FuelSupply(Coal)"wasprovidedbyPaulWeirCompanyIncorporatedandisincludedhereininrelianceonitsauthorityasanexpert.StatementsmadehereinastomattersoflawandlegalconclusionshavebeenreviewedbyEdwardM.Nagel,Esq.,GeneralCounseloftheCompany,andhavebeenmadeinrelianceonhisauthorityasanexpert.LEGALOPINIONSThevalidityoftheCommonStockofferedherebywillbepasseduponfortheCompanybyEdward,,M.Nagel,Esq.,GeneralCounseloftheCompany,andMessrs.SimpsonThacher8Bartlett,NewYork,N.Y.,andfortheUnderwritersbyMessrs.Sullivan6Cromwell,NewYork,N.Y.However,allmattersoflawoftheCommonwealthofPennsylvaniawillbepassedupononlybyMr.Nagel,whoisafull-timeemployeeoftheCompany.33 'IIJt~lf MANAGEMENTDirectors*JACKK.BUSBY,ChairmanoftheBoardandChiefExecutiveOfficeroftheCompany*ROBERTK.CAMPBELL,PresidentoftheCompany*RALPHR.CRANMER,MemberoftheBoardofDirectorsofGritPublishingCompanyEDGARL.DESSEN,Physician-Radiologist'OBERTR.FORTUNE,ExecutiveVicePresident,Financialofthe,Company*HARRYA.JENSEN,PresidentandChiefExecutiveOfficerofArmstrongCorkCompany*MemberofExecutiveCommittee.OfficersJACKK.BUSBY,ChairmanoftheBoardandChiefExecutiveOfficerROBERTK.CAMPBELL,PresidentROBERTR.FORTUNE,ExecutiveVicePresident,FinancialVIRGINIAH.KNAUER,PresidentofVirginiaKnauerandAssociates,Inc.W.DEMINGLEWIS,PresidentofLehighUniversityJOHNA.NOBLE,ChairmanoftheBoardandChiefExecutiveOfficerofCleiandSimpsonCompanyRUTHPATRICK,ChiefCuratoroftheLimnologyDepartmentoftheAcademyofNaturalSciencesofPhiladelphiaNORMANROBERTSON,SeniorVicePresidentandChiefEconomistofMellonBank,N.A.*JOSEPHT.SIMPSON,ChairmanoftheBoardofHarscoCorporationCHARLESH.WATTSII,EducationalandBusinessConsultant,formerPresidentofBucknellUniversityJOHNT.KAUFFMAN,VicePresident,SystemPowerLEngineeringEMMETM.MOLLOY,VicePresident,HumanResource8DevelopmentLEONL.NONEMAKER,VicePresident,DivisionOperationsCHESTERR.COLLYER,TreasurerNORMANW.CURTIS,VicePresident,Engineering&ConstructionJOSEPHL.DONNELLY,VicePresident,FinanceLOUISEA.EARP,AssistantSecretaryCHARLESE.FUQUA,VicePresident,SusquehannaDivisionCHARLESJ.GREEN,VicePresident,HarrisburgDivisionRICHARDH.LICHTENWALNER,VicePresident,InformationServicesCARLR.MAIO,VicePresident,LehighDivisionJAMESJ.McBREARTY,VicePresident,NortheastDivisionEDWARDM.NAGEL,VicePresident,GeneralCounselandSecretaryHERBERTD.NASHJR.,VicePresident,Consumer6CommunityServicesEDWINH.SEIDLER,VicePresident,DistributionBRENTS.SHUNK,VicePresident,LancasterDivisionJEANA.SMOLICK,AssistantSecretaryDONALDJ.TREGO,AssistantTreasurerGEORGEF.VANDERSLICE,VicePresidentandComptrollerPAULINEL.VETOVITZ,AssistantSecretaryHELENJ.WOLFER,AssistantSecretary34 Vi PENNSYLVANIAPOWER&LIGHTCOMPANYSTATEMENTOFCHANGESINFINANCIALPOSITION1973197419751976ThousandsofDollars1977SOURCEOFFUNDSOperationsNetincome..Charges(credits)againstincomenotinvolvingworkingcapitalDepreciation.NoncurrentdeferredincometaxesandInvestmenttaxcredits-net........'....................Allowancefor,fundsusedduringconstruction....Other..48,83752,39958,54062,47868,03511,282(14,967)220112,2848,790(20,732)520128,45615,701(36,605)7,464142,64131,789(45,192)4,669165,85533,579(49,395)(1~191)200,791$"66,912$87,479$97,541$112,111$149,763OutsideFinancingCommonstock.Preferredandpreferencestock......Firstmortgagebonds..Otherlong-termdebtShort-termdebt-netincrease......WorkingCapital-decrease(a).InvestmentsinAssociatedCompanies-decrease...........DepositsfromAlleghenyElectricCooperative(Note14)...Other-net..TotalSourceofFunds.................................APPLICATIONOFFUNDSConstructionExpenditures(Note14).NuclearFuelinProcess(Note14).....................................AllowanceforFundsUsedDuringConstruction................140,90040,000108,000'0,024208,9243,15635,15625,000180,00036045,658286,17468557,76370,000225,000208352,97115,1662,672$327,036$415,315$510,778$224,496(14,967)209,529$267,724$342,4963,7362,793(20,732)(36,605)250.728'08,68482,70575,000150,00025387,97550,000100,0005766,424$497,131$394,23813,555(45,192)362,601$362,55817,680(49,395)330,843307,958238,55116,89484,215608$524,165SecuritiesRetiredPreferencestock.Firstmortgagebonds..Otherlong-termdebt..Short-termdebt-netdecrease.....DividendsonPreferred,PreferenceandCommonStock..WorkingCapital-'ncrease(a)....................AcquisitionofHersheyElectricCompany.........................InvestmentsinAssociatedCompanies-Increase.............Other-net..TotalApplicationofFunds...........................~ChangesinComponentsofWorkingCapital(a)Cashandtemporarycashinvestments..............................Accountsandnotesreceivable.Coalandfueloil..Recoverablefuelcosts,lessrelateddeferredincometaxes.Accountspayableandaccruedtaxes...............................Dividendspayableandinterestaccrued.......:...................Other-net..Increase(Decrease).10,04156,63166,67250,037798$327,03618,63218,63258,89782,7534,305$415,315(10,006)(5,136)(289)$(3,156)16,747(1,811)(6,494)10,205$82,753$10,247$(3,792)6,74522,896(4,717)45,00293,00011211,879104,99170,68623,9902,427$510,778$(5,352)28,757(3,568)738(22,507)(6,346)(6,888)$(15,166)8,0003,05413,61824,67286,694,15,3097,8554,00020,50019636,61261,308100,81331,020181$12316,3946,5672,1258,501(4,612)(13,789)$15,309$19,13612,27930,8743,189(26,756)(4,034)'3,668$31,020$497,131$524,165(a)Excludesshortandlong-termdebtduewithinoneyear.SeeaccompanyingNotestoFinancialStatements.35 PENNSYLVANIAPOWER&LIGHTCOMPANYBALANCESHEETASSETSThousandsofDollarsDecember31,19781977UTILITYPLANTPlantinservice-atoriginalcostElectric...................................Steamheat..TotalplantInservice.Lessaccumulateddepreciation(Note5)Netplantinservice..Constructionworkinprogress-atcost.Nuclearfuelinprocess-atcost.Netutilityplant(Note8)..INVESTMENTSAssociatedcompanies-atequity..Nonutilitypropertyandother-atcostorless..Totalinvestments.CURRENTASSETSCash(Note4)..Temporarycashfnvestments,atcostwhichapproximatesmarket.Accountsreceivable(lessreserve:1976,$1,925;1977,$2,715)Customers.OtherNotesreceivable(principallyfromassociatedcompany)..Recoverablefuelcosts..Coalandfueloil-ataveragecost..Materialsandsupplies-ataveragecost.Other.Totalcurrentassets.DEFERREDDEBITS..$2,090,2827,8962,098,178458,6971,639,481720,54420,0842,380,10915,3277,54822,87514,95549,20522,85729,57041,67074,88519,0687,219259,4294,884$2,323,7928,1402,331,932508,9481,822,984829,48137,7642,690,22917,6407,41925,05914,09819,99352,38028,98832,54348,987105,759'9,4457,811330,0045,030Total.$2,667,297$3,050,322SeeaccompanyingNotestoFinancialStatements.36 ~4 PENNSYLVANIAPOWER8rLIGHTCOMPANYBALANCESHEETLIABILITIE6ThousandsofDollarsDecember31,19761977CAPITALIZATIONShareownersInvestment(Notes6,7and9)Preferredstock.Preferencestock..Commopstock.Capitalstockexpense.Earningsrelnvested.TotalshareownersInvestment.Long-termdebt(Note8).TotalcapitalizationCURRENTLIABILITIESLong-termdebtduewithinoneyear(Note8).Commercialpapernotes(Note4).Accountspayable(Note13)..Taxesaccrued..DeferredIncometaxesapplicabletorecoverablefuelcosts..Dividendspayabie..Interestaccrued.Other(Note13).Totalcurrentliabilities.DEFERREDANDOTHERCREDITSDeferredInvestmenttaxcredits.DeferredIncometaxes..DepositsfromAlleghenyElectricCooperative(Note14)..Other.Totaldeferredandothercredits..COMMITMENTSANDCONTINGENTLIABILITIES(Note15)Total.$231,375210,000,495,008(10,220)237,9671,164,1301,161,3192,325,44920,67560,01250,41512,56422,06023,00222,58921,184232,50156,52636,86015,961109,347$2,667,297$281,375206,000582,983(10,630)286,9111,346,6391,256,7392,603,3783,75623,40062,47227,26326,18826,61223,01325,821218,52582,07844,88784,21517,239228,419$3,050,322SeeaccompanyingNotestoFinancialStatements.37 PENNSYLVANIAPOWER&LIGHTCOMPANYSTATEMENTOFEARNINGSREINVESTEDBALANCE,JANUARY1.ADDNETINCOME.Total..1973$140,23866,912207,150197419751978ThousandsofDollars$157,113$185,695$212,55087,479'7,541112,111244,592283,236324,661$237,967149,763387,730DEDUCTCashDividendsDeclaredPreferredstock(atspecifiedannualrates).................Preferencestock(atspecifiedannualrates)...............Commonstock(pershare-1973,$1.68;1974,$1.77;1975and1976,$1.80;1977,$1.89)...........Other.Total.BALANCE,DECEMBER31(Notes7and9)....7,5519,3939,640'0,26332,84639,24150,03758,897$157,113$185,6959,39315,11646,17770,686$212,55013,12820,24053,32686,694$237,96717,12319,87063,8206100,819$286,911ISeeaccompanyingNotestoFinancialStatements38' PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS1.SUMMARYOFACCOUNTINGPOLICIESAccountingSystemAccountingrecordsaremaintainedinaccordancewiththeUniformSystemofAccountsprescribedbytheFederalEnergyRegulatoryCommission(FERC)andadoptedbythePennsylvaniaPublicUtilityCommission(PUC).PrinciplesofConsolidationTheaccountsoftheCompanyandHersheyElectricCbmpany(Hershey),awholly-ownedelectricdistributionsubsidiaryacquiredDecember31,1976,areconsolidatedintheaccompanyingfinancialstatementsfromtheacquisitiondate.Allsignificantintercompanytransactionshavebeeneliminated.TheacquisitioncostofthecapitalstockandtherepaymentofalldebtowedbyHersheyapproximated$7.9million.TheoperationsofHersheyarenotmaterialcomparedtooperationsoftheCompany.AssociatedCompaniesInvestmentsinunconsolidatedsubsidiaries(allwholly-owned)andinSafeHarborWaterPowerCorporation(one-thirdoftheoutstandingcapitalstockrepresentingone-halfofthatcompany'svotingsecurities)arerecordedusingtheequitymethodofaccounting.TheCompany'sunconsolidatedsubsidiariesareengagedincoalminingoperations,holdingcoalreserves,uraniumexploration,oilpipelineoperationsandrealestate.ExceptforuraniumminingclaimsinWyomingandUtahandminoramountsofrealestateheldinotherstates,theCompany'sunconsolidatedsubsidiaries'ropertyandoperationsareinPennsylvania.TheCompanybelievesthatitsfinancialpositionandresultsofoperationsarebestreflectedwithoutconsolidationofthesesubsidiariessincetheyarenotengagedinthebusinessofgeneratingordistributingelectricity.Ifalltheunconsolidatedsubsidiarieswereconsideredintheaggregateasasinglesubsidiary,theywouldnotconstitutea"significantsubsidiary"asthattermisdefinedbytheSecuritiesandExchangeCommission(SEC).UtilityPlantAdditionstoutilityplantandreplacementsofunitsofpropertyarecapitalizedatcost.Costsofdepreciablepropertyretiredorreplacedareremovedfromutilityplantandsuchcosts,plusremovalcosts,lesssalvage,arechargedtoaccumulateddepreciation.CostsoflandretiredorsoldareremovedfromutilityplantandanygainsorlossesarereflectedontheStatementofIncome.Allexpendituresformaintenanceandrepairsofpropertyandthecostofreplacementofitemsdeterminedtobelessthanunitsofpropertyarechargedtooperatingexpenses.AllowanceforFundsUsedDuringConstructionAsprovidedintheUniformSystemofAccounts,thecostoffundsusedtofinanceconstructionprojectsiscapitalizedaspartofconstructioncost.ThecomponentsofAllowanceforfundsusedduringconstructionshownontheStatementofIncomeunderOtherIncomeandDeductionsandInterestChargesarenon-cashitemsequaltotheamountsocapitalizedandservetooffsettheactualcostoffinancingconstruction.ReferenceismadetoNote(e)tothe"STATEMENTOFINCOME".DepreciationForfinancialstatementpurposes,thestraight-linemethodofdepreciationisusedtoaccumulateanamountequaltothecostofutilityplantandremovalcosts,lesssalvage,overtheestimatedusefullivesofproperty.ReferenceismadetoNote5toFinancialStatements.39 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)RevenuesRevenuesarebasedoncyclebillingsrenderedtocertaincustomersmonthlyandothersbi-monthly.TheCompanydoesnotaccruerevenuesrelatedtoenergydeliveredbutnotbilled.FuelCostsRecoverableUnderFuelAdjustmentClausesTheCompany'stariffsfiledwithboththePUCandFERCincludefueladjustmentclausesunderwhichfuelcostsvaryingfromthelevelsallowedinapprovedrateschedulesarereflectedincustomers'illsafterthefuelcostsareincurred.Fuelcostsrecoverableinthefuturethroughapplicationoffueladjustmentclausesaredeferredandchargedtoexpenseduringtheperiodsinwhichsuchcostsarebilledtocustomers.ReferenceismadetoNotes(b)and(c)tothe"STATEMENTOFINCOME"andto"RATEMATTERS"forfurtherinformationregardingthefueladjustmentclauses.IncomeTaxesTheCompanyanditssubsidiariesfileaconsolidatedFederalincometaxreturn.Incometaxesareallocatedtotheindividualcompaniesbasedontheirrespectivetaxableincomeorloss.IncometaxesareallocatedtoOperatingExpensesandOtherIncomeandDeductionsontheStatementofIncome.Incometaxreductionsassociatedwiththeinterest(borrowedfunds)componentoftheAllowanceforfundsusedduringconstructionconstitutetheprincipalitemofIncometaxcreditsunderOtherIncomeandDeductions.DeferredtaxaccountingisfollowedforitemswheresimilartreatmentinratedeterminationshasbeenorisexpectedtobepermittedbythePUC.Theprincipalitemsareacceleratedamortizationofcertifieddefensefacilitiesandpollutioncontrolequipment,deductionofcostsofremovingretireddepreciableproperty,thatportionoftaxdepreciationarisingfromshorteningdepreciablelivesby20/0undertheclasslifedepreciationsystem,fuelcostsrecoverableunderfueladjustmentclauses,theforcedoutagereserveandthecostoffuelconsumedduringthetestperiodofnewgeneratingfacilities.Taxreductionsarisingprincipallyfromtheuseofthedecliningbalancedepreciationmethod,guidelinelivesandcertainincomeandexpensesbeingtreateddifferentlyfortaxcomputationpurposesthanforbookpurposesareaccountedforundertheflow-throughmethod.Investmenttaxcredits,whichresultinareductionofFederalincometaxespayable,aredeferredandamortizedovertheaveragelivesoftherelatedproperty.Thetaxcreditsaregenerallyequalto10/oof(1)thecostofcertainpropertyplacedinserviceand(2)progresspaymentsfortheconstructionofcertainfacilitiesthathaveaconstructionperiodofatleasttwoyears.TheCompanyhasadoptedanEmployeeStockOwnershipPlan(ESOP)whichpermitstheCompanytoclaimanadditional1/oinvestmenttaxcredit.AnamountequaltothisadditionalcreditispaidtotheESOPtrusteetoacquireCommonStockoftheCompanyforemployees.ReferenceismadetoNote10toFinancialStatements.RetirementPlanTheCompanyhasaRetirementPlancomposedoftwoparts:(1)anon-contributoryportionwhichprovidesbenefitsforalleligibleactiveemployeeswiththefullcostabsorbedbytheCompany,and(2)avoluntaryportioninwhichcontributionsaremadebybothemployeesandtheCompany,butthefullcostofPlanimprovements,includingrelatedpriorservicecosts,isbornebytheCompany.Approximately95/oofeligibleactiveemployeesaremembersofthevoluntaryportionofthePlan.CompanycontributionstothePlanincludeamountsrequiredtofundcurrentservicecostsandtoamortizeunfundedpriorservicecostsoverperiodsofnotmorethan20years.ReferenceismadetoNote11toFinancialStatements.40
- ilr, PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)ForcedOutageReserveAself-insurancereserveisprovidedtocovertheincreasedlevelofpowercostswhichareexperiencedwhenanyoftheCompany'smajorgeneratingunitsareforcedoutofserviceduetodamagecausedbyaccidentorotherunforeseeninsurableoccurrences.Increasedpowercostsresultingfrompurchasingorgeneratingreplacementpowerathighercostsorlossofinterchangesalesinexcessof$0.5millionthrough1975and$1millioneffectiveJanuary1,1976foreachaccidentoroccurrencearechargedtothereserve.AstocertainoftheCompany'slargegeneratingunits,costschargeabletothereservearelimitedto$12.5millionsinceoutsideinsuranceiscarriedtocovercostsinexcessofthatamount.ThereserveisestablishedonthebasisofhistoricalexperienceandhasbeenrecqgnizedinratemakingproceduresbythePUC.AtDecember31,1976andDecember31,1977thereservebalancewas$13.9millionand$14.5million,respectively.2.RATEFILINGSReferenceismadetoinformationappearingunder"RATEMATTERS".3.FUELCOSTSRECOVERABLEUNDERFUELADJUSTMENTCLAUSES,ReferenceismadetoNotes(a),(b)and(c)tothe"STATEMENTOFINCOME".4.LINESOFCREDITANDSHORT-TERMDEBTShort-termdebtoftheCompanyconsistsofbankloans(generallyborrowedforoneyearattheprimeinterestrateandprepayableatanytimewithoutpenalty)andcommercialpapernotes(generallymaturingwithin30to60days).Inordertoprovideinterimfinancingandback-upfinancingcapabilityforcommercialpapernotes,theCompanyhaslinesofcreditwithbanksthataremaintainedbycompensatingbankbalancerequirements(notlegallyrestrictedastowithdrawal)orthepaymentofcommitmentfees.Informationregardingsuchshort-termdebtandlinesofcreditisasfollows(thousandsofdollars):Short-termdebtoutstandingWeightedaverageshort-termdebtinterestrate..............................Maximumaggregateshort-termdebtoutstandingatanymonthAveragedailyshort-termdebtoutstanding(a)Aggregateamount.Weightedaverageinterestrate(b)...........Linesofcredit(c)Maintainedbycompensatingbankbalances...........................Maintainedbypaymentofcommitmentfees...........................Averageannualcompensatingbankbalancerequirement..............Annualcommitmentfees..AsofDecember31,1979$60,0124.7o/o1977$23,4006.5'/0$129,5985.5o/0$143,500$56,500$13,850$313$79,2025.7o/o$147,500$52,500$13,300$319$194,578$106,727(a)Duringtheprecedingyear.(b)Calculatedbydividingshort-terminterestexpensefortheyearbytheaverageaggregatedailyshort-termdebtoutstandingduringtheyear.(c)UseoftheselinesofcreditwasrestrictedatDecember31,1976andDecember31,1977totheextentof$4millionbyshort-termbankloanstotwosubsidiarycompanies.41 PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)5.DEPRECIATIONProvisionsfordepreciationasapercentoftheaverageoriginalcostofdepreciablepropertyhaveapproximated3.4%for1973,3.3%for1974and1975and3.2%for1976and1977.Thelowercompositedepreciationratefor1976and1977reflectschangesmadeinestimatedusefullivesofcertainfacilitiesinaccordancewithaPUCrateorderissuedin1976.Noprovisionisbeingmadefordepreciationoramortizationofintangiblesofapproximately$1.3millionincludedInUtilityPlant.6.CAPITALSTOCKCommonStock-noparconsistsof50,000,000authorizedsharesofwhich30,803,318shareswere,outstandingatDecember31,1976and34,923,452shareswereoutstandingatDecember31,1977.CommonStockof$582,983,000atDecember31,1977includes$686,000cashinstallmentsreceivedunderadividendreinvestmentplanasconsiderationfor29,603sharesofCommonStockwhichwereissuedin-January1978.PreferredStock($100par,cumulative)andPreferenceStock(nopar,cumulative)consistedofthefollowing(thousandsofdollars):SharesAmountRedemptionPriceFinalOutstandingDecember31,Authorized1977December31,19761977December31,1977YearPriceEtfectlvePreferred4'%..........Series........3.35%....4.40%....4607.40%....8.00%....8.60%....9.00%....9.24%Total.....629,9365,000,000530,18941,783228,77363,000400,000500,000222,37077,630750,0004,17822,8786,30040,000222377,76375,0004,178,22,8786,30040,00050,00022,2377,76375,000103.50102.00103.00112.00112.00110.00110.00115.00$231,375$281,375$53,019$53,019$110.00$110.00103.50102.00103.00100.001998100.001997101.001990101.001990101.001991Preference......5,000,000$8.00...........$8.40...........$8.70...........$9.25...........$11.00.........$13.00.........Total.....350,000400,000400,000160,000500,000250,000$35,00040,00040,00020,00050,00025,000$35,00040,00040,00016,00050,00025,000$210,000$206,000$105.50110.00109.00109.90111.05$101.001987101.001986101.001984100.001981100.001995100.00199442 Ik,~'.
PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)RedemPtionPeriodThePreferenceStockmaynotberefundedthroughcertainrefundingoperationspriortothefollowingdates:$8.70Series,7/1/78;$13.00Series,10/1/84;$11.00Series,7/1/85.Otherwise,thePreferredandPreferenceStockmayberedeemed,inwholeorinpart,attheoptionoftheCompanyatredemptionpricesrangingbetweentheDecember31,1977priceandthefinalpriceshownabove,withtheexceptionthatthePreferenceStock,$9.25Series,isnotredeemablebytheCompanyotherthanthroughthesinkingfundrequirementorvoluntaryliquidation.TheliquidationpricesofallissuesofPreferredStock,whicharepayableonaparitywitheachotherandinpreferencetothePreferenceStockandtheCommonStock,areasfollows:involuntaryliquidation$100ashare;voluntaryliquidation$100ashareforthe4V2/oPreferredStockandtheredemptionpriceineffectatthetimefortheSeriesPreferredStock;plusineachcaseanyunpaiddividends.TheliquidationpricesofallseriesofPreferenceStock,whicharepayableonaparitywitheachotheraftersatisfactionofthepreferentialrightsofPreferredStockandinpreferencetotheCommonStock,areasfollows:involuntaryliquidation$100ashare;voluntaryliquidationtheredemptionpriceineffectatthetime,withtheexceptionthatthevoluntaryliquidationpriceofthePreferenceStock,$9.25Series,is$110'share;plusineachcaseanyunpaiddividends.Eachofthefollowingseriesofstockcontainssinkingfundprovisionsdesignedtoretiretheseriesataredemptionpriceof$100ashareplusaccruedandunpaiddividendstothe'dateofsuchredemption:SharestobeRedeemedAnnuallyPreferredStock.7.40/oSeries.8.00/oSeries.9.24/oSeries(a).....PreferenceStock$9.25Series(b)......$11.00Series(a)....$13.00Series(a)....16,00025,00030,00040,00025,00012,500July1,1979-July1,2003Oct.1,1983-Oct.1,2002July1,1981-July1,2005Jan.1,1977-Jan.1,1981July1,1981-July1,2000Oct.1,1980-Oct.1,1999(a)TheCompanyhastherighttoredeemoneachsinkingfundredemptiondateadditionalsharesuptothenumberofsharesofthisSeriesrequiredtoberedeemedannually.(b)InJanuary1978,theCompanyredeemed40,000shares.Capitalstockexpenserepresentscommissionsandexpensesincurredinconnectionwiththeissuanceandsaleofcapitalstock.CapitalstockexpenseapplicabletothepreferredandpreferencestockserieswhicharetoberedeemedthroughsinkingfundprovisionsisamortizedtoEarningsReinvestedastherespectiveseriesofstockareredeemed.Theunamortizedbalanceapplicabletotheseseriesofstockswas$3.2millionatDecember31,1977.Noamortizationplanisineffectforcapitalstockexpenseapplicabletootherissuesofcapitalstock.43 ll PENNSYLVANIAPOWER4LlGHTCOlHPANYNOTESTOFINANCIALSTATEMENTS-(Continued)ChangesincapitalstockfortheperiodJanuary1,1973throughDecember31,1977wereasfollows(sharesandamountsinthousands):1973197519761977YearSharesAmountIaaued(Redeemed)Common,PublicOffering.........................2,000$40,900Preferred,7.40'/eSeries............................40040,0001974Common,PublicOffering.........................2,20035,156Preference,$13.00Series..~.....................25025,000CommonPublicOffering.3,00051,450DividendReinvestmentPlan.................3015,595Preference,$11.00Series........................50050,000Preference,$9.25Series..........................20020,000CommonPublicOffering.3,50067,935DividendReinvestmentPlan.................71614,268EmployeeStockOwnershipPlan..........35755Preferred,9.24'/eSeries............................75075,000CommonPublicOffering.3,20067,040DividendReinvestmentPlan.................81218,185EmployeeStockOwnershipPlan..........1082,528Preferred,8.00'/eSeries............................50050,000Preference,$9.25Series..........................(40)(4,000)7.DIVIDENDRESTRICTIONSReferenceismadetoinformationappearingunder"DESCRIPTIONOFCOMMONDividendRestrictions".8.LONG-TERMDEBTLong-termdebtoutstandingconsistedofthefollowing(thousandsofdollars):December31,STOCK-Firstmortgagebonds..Notes:7~/0due1980.Other.Unamortized(discount)andpremium-net...Total.Lessamountduewithinoneyear...................Totallong-termdebt.1976$1,165,5001120,000550(4,056)1,181,99420,6751977$'I,245,00020,000929(5,434)1,260,4953,756$1,161,319$1,256,73944 S-tkIU PENNSYLVANIAPOWER8cLIGHTCOMPANYNOTESTOFINANCtALSTATEMENTS-(Continued)FirstmortgagebondsconsistedofthefollowingseriesatDecember31,1976andDecember31,1977(thousandsofdollars):Out!tendingOutatandlngSerleaDue197819772%/o1977$20,0003Vao/o19783,000$3,00027'o198037,00037,0003%/o,19827,5007,50010Va'/o1982100,000100,0003'o198325,00025,0003%/o198525,00025,0004%o/o199130000300004%'/o199430,00030,0005%o/o199630000300006%o/o19973000030000Serica7'/o8Vao/o9o/o7'/4'/oo/o7V20/09'/4'/o9%o/o9Vio/o8Vio/o8Vao/o(a)Due197819771999$40,000$40,000199940,00040,000200050,00050,000200160,00060,000200275,00075,000200380,00080,000200480,00080,0002005125,000125,0002005100,000100,0002006150,000150,0002007100,00028,00027,500(a)4V2/oto5%/oPollutionControlSeriesAdueannually:$500,1977-1983;$900,1984-2002;$7,400,2003.Themaximumaggregateannualsinkingfundrequirementsthrough.1982oftheoutstandingmortgagebondsare(thousandsofdollars):19781979$2,740$3,2651982$4,4501980$3,050Theamountoflong-termdebtmaturingineachcalendaryearthrough1982is(thousandsofdollars):cars1979198019811982$3,756$666$57,660$645$108,098.Lesserrequirementswillapplyfortheyears1978-1982iflong-termdebtis50/oorlessofnetproperty.'TheCompanyhastherighttomeetalloftheserequirementswithpropertyadditionsorbonds.SubstantiallyallutilityplantissubjecttotheliensoftheCompany'smortgages.9.HYDROELECTRICPROJECTSReferenceismadetotheinformationappearingunder"BUSINESS-HydroelectricProjects".45 fFh'ddpd~'IFhhdVdF~Idd~hh*hF\~ PENNSYLVANIAPOWER8cLIGHTCOMPANYNOTESTORNANCIALSTATEMENTS-(Continued)10.TAXESIncometaxexpenseisrecordedontheStatementofIncomeasfollows(thousandsofdollars):10731974107510791977OperatingExpensesProvisionFederal.....................$16,454State........................6,20722,661$12,554$22,547$656$34,8043,8588,2216,76616,19316,41230,7687,42250,997DeferredFederal.....................4,5571,18015,9913,2712,9525907,1851,5609,3942,7615,73719,2623,5428,74512,155'InvestmenttaxcreditsDeferred...................Amortizationofdefer-ments.................~~7,2334,75314,46529,49630,592(1,688)(1,216)(1,477)(1,835)(2,243)5,5453,53712,98827,66128,349OtherIncomeandDeductionsProvision(credit)Federal..........State.............33,94339,21147,29843,82891,501(46)(4,156)(9,164)(11,859)(11,008)(45)(920)(2,037)(2,598)(2,700)(91)(5,076)(11,201)(14,457)(13,708)Totalincometaxexpense........$33,852FederalandStateIncomeTaxesPayable(Credit)........$22,570$34,135(a)$36,097$29,371$77,793$11,336$19,567$(7,035)$37,289(a)Excludes$4,831,000deferredIncometaxesrelatedtoNonrecurringCredit.InvestmenttaxcreditseliminatedtheCompany'sFederalincometaxliabilityfor1976andresultedInacredittotheprovisionforincometaxesofapproximately$5.9millionrelated'toacarrybackofInvestmenttaxcreditstoprioryears.Totalincometaxexpensefor1976hasbeencreditedbyapproximately$5.0millionrepresentingadjustmentsofprioryears'axliabilities.Theprincipaladjustment,relatedtoadoptionofthemodifiedhalf-yearconventionmethodofcomputingtaxdepreciationintheCompany's1975Federalincometaxreturn,reducedtotalincometaxexperisebyapproximately$2.8million.46 tl~ilN'II)sl PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)2,680$5,737Deferredincometaxesresultfromthefollowing1973Taxdepreciation(classlifesystem).$3,057Recoveiablefuelcosts....................Forcedoutagereserve....................OtherTotal.items(thousandsofdollars):19741975197B$3,715$4,540$6,46314,009(a)8292,391(3,726)(1,041)1,5381,899932$19,262$3,542$8,7451977$6,1734,128(344)2,198$12,155Federaland1977$149,76377,793Netincome.Incometaxexpense...Pre-taxincome.Indicatedincometaxexpenseatcombinedtaxrates(shownbelow)..........Reductionsdueto:Allowanceforfundsusedduringconstruction.Taxdepreciation(guidelinelivesanddecliningbalancemethod)..............Taxandpensioncost..........................Other-net.Total.Incometaxexpense..CombinedFederalandStateincometaxrates.Effectiveincometaxrates..........................$227,556$54,131$66,940$70,748$74,901$121,6518,04110,97619,37923,925"26,4079,1312,9983,1437,5312,6872,02010,9533,7532,74515,0673,3543,1848,7992,4915,70820,27927,97434,65145,53043,858$33,852$38,966$36,097$29,371$77,793E53.72/o52.94/o52.94/o52.94/o53.46/o33.6'/030.8'/o27.0'/o20.8'/o342o/o(a)Excludes$4,831,000deferredincometaxesrelatedtoNonrecurringCredit.IncometaxexpensedifferedfromtheamountcomputedbyapplyingthecombinedStatecorporateincometaxratestopre-taxincomeasfollows(thousandsofdollars):1973'97419751975$66,912$87,479$97,541$112,11133,85238,96636,09729,371$100,764$126,445$133,638$141,482Taxesotherthanincometaxeschargedtooperatingexpensewere(thousandsofdollars):19731974197519751977Stategrossreceipts............................$16,867$20,564$23,756$28,320$32,932Statecapitalstock.'5,4036,2637,2848,8609,996Stateutilityrealty4,6875,2585,9808,05211,582Socialsecurityandother.....................3,0483,4863,6494,2945,172Total.$30,005$35,571$40,669$49,526$59,682147 ~1~hk 11.RETIREMENTPLANPENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)ObligationsoftheCompany'sRetirementPlanarecurrentlyfundedthroughaTrustFund.AtJune30,1977,theendofthePlan'smostrecentfiscalyear,theFund'sassetsatmarketwere$100.3millionandatcostwere$104.6million.Pensioncostswere(thousandsofdollars):1973$6,7611974$6,6611975$8,8301976$9,7551977$11,315PlanamendmentseffectiveasofJuly1,1976,subjecttoInternalRevenueServiceapproval,providedforincreasedbenefits,reducedemployeecontributionsandcertainotherminorchangestocomplywiththeEmployeeRetirementIncomeSecurityActof1974.BasedontheFund'sassetsatcost,atJune,30,1977theactuariallycomputedunfundedpriorservicecostwas$27.2million.AsofthesamedatetheactuariallycomputedvalueofvestedbenefitsexceededthecostbasisoftheFund'sassetsby$17.4million.12.RENTALSANDLEASECOMMITMENTSPrincipalrentalcostsaffectingexpenseswereasfollows(thousandsofdollars):1973197419751976,1977Chargedto:Operatingexpense...Fuelinventory(a).......$7,515$8,911$9,477$942$870$1,276$10,502$11,023$1,761$2,349(a)Representsrentalofrailroadcoalcarswhichamountsarechargedtofuelinventoryandsubsequentlyincludedinfuelexpense.AtDecember31,1977,theCompanyhadlong-termleaseagreementswhichrequirefutureminimumrentalsasfollows(millionsofdollars):1978,$14.5;1979,$13.5;1980,$12.7;1981,$11.7;1982,$10.5;after1982,$89.3.TheCompanyalsoleasesotherpropertyundershort-termagreementswithrentalscurrentlyamountingtoapproximateiy$3.3millionannually.GenerallytheCompany'slong-termleasescontainrenewaloptionsandobligatetheCompanytopaymaintenance,insuranceandotherrelatedcosts.TheleasesdonotincluderestrictionsonanyoftheCompany'sotherfinancialactivities.CertainoftheCompany'sleasesmeetthecapitalizationcriteriaestablishedbytheFinancialAccountingStandardsBoardin1977whichwouldnormallyrequire(1)thatanassetandassociatedliabilityberecordedatanamountequaltothepresentvalueoftheminimumleasepaymentsand(2)thatexpensebechargedwithamortizationoftheleaseassetandinterestexpenseontheliability.However,inaccordancewiththemannerinwhichtheCompany'srateshavebeenestablishedbythePUC,theCompanyaccountsforsuchleasesasoperatingleasesandappropriateaccountshavebeenchargedwithactualrentalexpense,andanassetandassociatedliabilityrelatedtosuchleaseshavenotbeenrecorded.48
PENNSYLVANIAPOWERScLIGHTCOMPANYNOTESTOFINANCIALSTATEINENTS-(Conttnued)InaccordancewithSECdisclosurerequirementsapplicabletoallregulatedcompaniessubjecttotherate-makingprocessthatdonotrecordcapitalleasesasassetswithassociatedliabilities,theCompanyhascomputedtheaggregateassetandliabilitybalancesthatwouldhavebeenrecordedhadallleasesmeetingthedefinitionofacapitalleasebeencapitalizedasfollows(thousandsofdollars):December31,CapitalleaseassetAccumulatedamortizationcare$78,713(33,320)$45,393Currentobligationsundercapitalleases...........................$7,543Noncurrentobligationsundercapitalleases.....................40,445$47,9881977$104,291(37,855)$66,436$8,17361,333$69,506Theexcessoftheaboveliabilitybalancesovertherelatedassetbalancesrepresentsthedifferencesbetween(i)theamortizationandinterestexpensethatwouldhavebeenrecordedsinceinceptionoftheleasesand(li)theactualrentalsincurred.Thedifferenceintheamountofsuchamortizationandinterestexpensecomparedtoactualrentalsrecordedisnotmaterialforeachoftheyears1973-1977.13.RECLASSIFICATIONApproximately$9.9millionrepresentinganaccrualatDecember31,1976forcurrentliabilitiesrelatedtoconstructionoffacilitieshasbeenreclassifiedontheBalanceSheetfromAccountspayabletoOthercurrentliabilitiestomaketheItemcomparabletotheclassificationin1977.14.SALEOF10/oOFSUSQUEHANNAPLANTInJanuary1978,pursuanttoagreementsenteredintoinMarch1977,theCompanysoldtoAlleghenyElectricCooperative,Inc.(Allegheny)a10/oundividedownershipintheSusquehannanuclearplantcurrentlyunderconstruction.ThroughDecember31,1977,Alleghenymadedepositsaggregatingapproximately$84millionrepresentingamountsdueundertheagreements.TheCompany's1977constructionandnuclearfuelexpendituresshownonthe'StatementofChangesinFinancialPositionInclude100/ooftheexpendituresapplicabletotheSusquehannaplant.Approximately$23millionofAllegheny'sdepositsrepresenteditsshareofth'e1977expenditures.15.COMMITMENTSANDCONTINGENTLIABILITIESTheCompanyestimatesthatabout$1.31billionwillberequiredtocompleteconstructionprojectsinprogressattheendof1977,excludingnuclearfuelpayments.Ofthisamount,approximately$1.05billionrepresentstheCompany'sshareofcostsrequiredtocompletethetwonucleargeneratingunitsatSusquehanna.ReferenceIsmadetoadditionalinformationappearingunder"CONSTRUCTIONPROGRAM","BUSINESS-EnvironmentalMatters"and"BUSINESS-FuelSupply".49 PENNSYLVANIAPOWERScLIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)Inconnectionwithprovidingforitsfuturebituminouscoalsupply,theCompanyatDecember31,1977hadguaranteedcapitalandotherobligationsofcertaincoalsuppliers(includingownedcoalcompanies)aggregating$160.8million.See"BUSINESS-FuelSupply(Coal)".16.SUMMARYOFQUARTERLYRESULTSOFOPERATIONS(UNAUDITED)QuarterlyearningscanbeInfluencedbyweather,timingofraterelief,performanceofgeneratingstations,salestootherutilitiesandotherfactorssuchasthosedescribedunder"MANAGEMENT'S"DISCUSSIONANDANALYSISOFTHESTATEMENTOFINCOME".QuarterEndedOperatingRevenuesOperatingIncomeNetIncomeThefollowingissummaryquarterlydatafortheyears1976and1977(thousandsofdollars):EarningsEarningsPerShareApplicableToOfCommonCommonStockStock(a)1976March31..............................~..June30..............~.....................September30..........................December31(b).......................1977March31,June30.......September30(c)......................December31............~..............$166,269149,281149,580179,017$34,36028,00635,24140,727208,894.47,017173,299.43,912174,06748,913188,47144,469$25,18921,28130,42335,218ll40,11435,54734,93639,166$17,78113,603,21,28226,07731,06626,49825,88829,318$0.670.460.700.851.000.790.750.84(a)Basedontheaveragenumberofsharesoutstandingduringthequarter.(b)Resultsforthefourthquarterof1976includeareductioninincometaxexpenseof$2.4millionduetoincreasedtaxdepreciationapplicabletoMartinsCreekUnitNo.4whichbegantestoperationinDecember1976anda$2.1millionchargetoexpense(netofincometaxes)toadjusttheamortizationofdeferredfuelcostsfortheyears1970-1975totheactualfueladjustmentrevenuesbilledduringthoseyears.(c)Resultsforthethirdquarterof1977includea$6.6million(netofincometaxes)loss($.20pershare)ofasubsidiarycompanywhichwasrecordedbytheCompanyinaccordancewithequityaccounting:17.REPLACEMENTCOSTDATA(UNAUDITED)IncompliancewiththerulesoftheSEC,theCompanyhasestimatedcertainreplacementcostinformationforutilityplantinserviceanddepreciation.TheCompanyhasnotincludedreplacementcostdataformaterialsandsuppliesinventorysincetheamountoftheinventoryisnotsignificant.ReplacementcostdatarelatingtofuelinventorieshavenotbeenIncludedsincechangesincostlevelsarerecoveredthroughtheoperationoffueladjustmentclauses.50 PENNSYLVANIAPOWER8rLIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Continued)Althoughthereplacementcostdatadisclosedhereinhave,intheCompany'sopinion,beenreasonablyestimatedinaccordancewitlirulesandinterpretationsofsuchrulespublishedbytheSEC,theCompanybelievesthatinvestorsshouldbeawareoftheimprecisionandlimitationsofthisinformationandofthemanysubjectivejudgmentsrequiredinthereplacementcostestimation.ThereplacementcostofutilityplantisbasedonthehypotheticalassumptionthattheCompanywouldreplaceitsentireproductivecapacityasofDecember31,1977,whetherornotthefundstodosowereavailableorsuch"instant"replacementwerephysicallyorlegallypossible.ThisassumptionrequiresthattheCompanycontemplateactionsasofDecember31,1977thatordinarilywouldnotbeaddressedallatonetime.Accordingly,theinformationshouldnotbeinterpretedtoindicatethattheCompanyactuallyhaspresentplanstoreplaceitsproductivecapacityorthatactualreplacementwouldorcouldtakeplaceinthemannerassumedinestimatingtheinformation.Inthenormalcourseofbusiness,theCompanywillreplaceitsproductivecapacityoveranextendedperiodoftime.Decisionsconcerningreplacementwillbemadeinlightoftheeconomics,availabilityoffunds,fuelavailability,equipmentavailability,customerdemandandregulatoryrequirementsexistingwhensuchdeterminationsaremadeandcoulddiffersubstantiallyfromtheassumptionsonwhichthedataIncludedhereinarebased.Thereplacementcostdatapresentedarenotnecessarilyrepresentativeofthe"currentmarketvalue"ofexistingfacilitiesorofthe"fairvalue"ofutilityplantasthattermisusedinrateproceedingsbeforethePUC.ThereplacementcostinformationpresenteddoesnotreflectalloftheeffectsofinflationontheCompany'scurrentcostsofoperatingthebusiness.TheCompanyhasnotattemptedtoquantifythetotalimpactofinflation,environmentalandothergovernmentalregulations(exceptassetforthbelow)andchangesinother.economicfactorsonthebusinessbecauseofthemanyunresolvedconceptualproblemsandrate-makingconsiderationsinvolvedindoingso.Accordingly,itistheCompany'sviewthatthereplacementcostdatapresentedhereincannotbeusedalonetodeterminethetotaleffectofinflationonreportednetincome.ThecomputedreplacementcostoftheCompany'sutilityplantinserviceandrelatedaccumulateddepreciationwithcomparativehistoricalcostdataareasfollows(millionsofdollars):Computed'istoricalReplacementCostCostUtilityplantinserviceatDecember31,'977Subjecttoreplacementcostdetermination........Land,plantheldforfutureuseandintangiblesatoriginalcost.Totalplantinservice..Lessaccumulateddepreciation.Netplantinservice.$2,216$5,0451165,1611,197$3,96451 ds'~I~n PENNSYLVANIAPOWER&LIGHTCOMPANYNOTESTOFINANCIALSTATEMENTS-(Concluded)Thereplacementcostofcoal-firedandoil-firedsteamstationcapabilitywasdeterminedbytrendingtheconstructioncostofthemostrecentlyinstalledbituminouscoal-firedunits(800mwcapabilityrange)andcomputingareplacementcostperkwcapabilityoftheunits.ThiscostperkwwasappliedtotheCompany,'srespectivecoal-firedandoil-firedsteamstationcapabilitytodeterminethegrossreplacementcostofsuchfacilities.Thegrossreplacementcostofbituminouscoal-firedunitsatDecember31,1977includesapproximately$725millionwhichtheCompanyestimateswouldhavetobeexpendedtoenablesuchfacilitiestomeetparticulateandsulfurdioxideemissionregulationsexistingatDecember31,1977,usingcurrenttechnology.Theoriginalinstalledcostofhydroelectric,otherpowerproduction,transmission,distribution,andotherfacilitieswastrendedtodeterminereplacementcost.ThetrendindicesutilizedweredeterminedbytheCompanyandarebelievedtobemorerepresentativeofthechangesinconstructioncostsexperiencedbytheCompanythanpublishedindices.AsofDecember31,1976,theCompanycomputedthereplacementcostofoil-firedsteamstationcapabilitybasedontheassumptionthatthiscapabilitywouldbereplacedwithotheroil-firedsteamstations.However,asaresultofpendingFederallegislationintroducedin1977whichwouldrestrictthebuildingoffutureoil-firedsteamstations,theCompanyhasassumedthatasofDecember31,1977itsoil-firedsteamstationcapabilitywouldbereplacedwithcoal-firedunits.TheaccumulateddepreciationrelatedtothereplacementcostofproductivecapacitywasdeterminedbyapplyingthesamepercentagerelationshipthatexistedbetweengrossutilityplantandaccumulateddepreciationbyfunctionalgroupsonahistoricalbasisatDecember31,1977tothecurrentreplacementcostoftheproductivecapacity.Thecomputedreplacementcostdepreciationexpensefortheyears1976and1977andcom-parativehistoricalcostdataareasfollows(millionsofdollars):19761977Depreciationexpense...~......ComputedReplaco-HistoricalmentHistoricalCostCostCost$62$123$68ComputedReplace-mentCost$140Replacementcostdepreciationexpensefortheyears1976and1977wasdeterminedonastraight-linebasisbyapplyingthefunctionalclassdepreciationaccrualratescurrentlyinusetotheaverageofyear-endreplacementcostamountsfortherespectivefunctionalclass.SuchamountshavebeencalculatedinaccordancewithSECinstructionsanddonotrepresentanactualexpense.Withinthecontextofutilityrate-makingprocedures,thepurposeofbookdepreciationexpense,asshownontheStatementofIncome,istoproviderecoveryofinvestedcapitaloverthelifeoftherelatedfacilities,andisnotintendedtoprovideafundequaltotheamountnecessarytoreplacesuchfacilitiesatthecostlevelexistingatthetimeofreplacement.Noadjustmenthasbeenmadetocomputedreplacementcostdepreciationexpensefor1976toreflectthechangeinassumptionsregardingthereplacementofoil-firedsteamstationcapabilitydescribedabove.52 OPINIONOFINDEPENDENTCERTIFIEDPUBLICACCOUNTANTSPENNSYLVANIAPOWER8LIGHTCOMPANY:WehaveexaminedthebalancesheetsofPennsylvaniaPower8LightCompanyasofDecember31,1976and1977andtherelatedstatementsofincome,earningsreinvested,andchangesinfinancialpositionforeachofthefiveyearsintheperiodendedDecember31,1977.Ourexaminationsweremadeinaccordancewithgenerallyacceptedauditingstandardsand,accordingly,includedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircum-stances.lnouropinion,suchfinancialstatementspresentfairlythefinancialpositionoftheCompanyatDecember31,1976and1977andtheresultsofitsoperationsandthechangesinitsfinancialpositionforeachofthefiveyearsintheperiodendedDecember31,1977,inconformitywithgenerallyacceptedaccountingprinciplesconsistentlyappliedduringtheperiodexceptforthechangein1974,withwhichweconcur,inthemethodofaccountingforrecoverablefuelcostsasdescribedinNote(b)totheStatementofIncome.HASKINS8SELLSNewYork,NewYorkFebruary3,197853,
UNDERWRITINGTheUnderwritersnamedbelowhaveseverallyagreedtopurchasefromtheCompanytherespectivenumbersofsharesofCommonStockofferedhereby:TheFirstBostonCorporation..............................DrexelBurnhamLambertIncorporated..............BacheHalseyStuartShieldsIncorporated..........MerrillLynch,Pierce,Fenner&SmithIn-corporated.Advest,Inc.Allen&CompanyofLakeland,Inc......................AlmstedtBrothers,Inc.Arthurs,Lestrange&Short.................................Babbitt,Meyers8Company...............................Bacon,Whlpple8Co.RobertW.Baird&Co.Incorporated...................Baker,Watts&Co..BatemanEichler,HillRichards,Incorporated.....Birr,Wilson&Co.,IncD.H.Blair8Co.,Inc..........................................WilliamBlair8Company....................................BlythEastmanDillon8Co.Incorporated............Boennlng&Scattergood,Inc..............................Boettcher&Company.J.C.Bradford8Co.,Incorporated.....................Alex.Brown&Sons..Bruns,Nordeman,Rea8Co..............................Butcher8SingerInc..........................................Butler,Wick&Co.TheChicagoCorporation...................................Colin,HochstlnCo.C.C.ColllngsandCompany,Inc......................"..Cowen8Company.Crowell,Weedon8Co.Cunningham,Schmertz&Co.,Inc......................Dain,Kalman8Quail,Incorporated...................Dillon,Read8Co.Inc........................................Doft8Co.,inc.Donaldson,Lufkln&JenretteSecuritiesCorpo-ration.A.G.Edwards&Sons,Inc.................................Elklns,Stroud,Suplee&Co................................Fahnestock8Co.Ferris&Company,Incorporated.........................FirstAlbanyCorporation.....................................NumberofShares290,000290,000290,000,290,00020,0007,0007,00013,00013,00013,00020,0007,00020,0007,0007,00020,00041,00013,00013,00013,00020,00013,00030,0007,00013,0007,0007,0007,00013,0007,00020,00041,00013,00041,00020,00030,00013,00013,0007,000FirstEquityCorporationofFlorida..........FirstofMichiganCorporation..................FirstPittsburghSecuritiesCorporation....~Goldman,Sachs8Co.Gradison8CompanyIncorporated.....Gruntal8Co.Hefren-Tillotson,Inc.BernardHerold&Co.,Inc..............Herzfeld&Stern..HopperSoliday8Co.,Inc..............Howe,Barnes8Johnson,Inc........E.F.Hutton8CompanyInc...........InterstateSecuritiesCorporation.....JanneyMontgomeryScottInc....Johnston,Lemon&Co.Incorporated.................Josephthal&Co.Incorporated...........................Kidder,Peabody&Co.Incorporated..................Ladenburg,Thalmann&Co.Inc.........................LaidlawAdams8PeckInc.................................LazardFreres&Co.JamesA.Leavens,Inc.LeggMasonWoodWalker,Incorporated............LehmanBrothersKuhnLoebIncorporated.........LoebRhoades,Hornblower&Co.......................A.E.Masten&Co.~Incorporated.......................McDonald&CompanyTheMilwaukeeCompany...................................Moore,Leonard8Lynch,Incorporated..............Moore&Schley,Cameron&Co.........................Morgan,Olmstead,Kennedy&Gardner,In-corporated..Moseley,Hallgarten&EstabrookInc..................W.H.Newboid'sSon&Co.,Inc.........................TheOhioCompanyOppenheimer8Co.,Inc.....................................Paine,Webber,Jackson&Curtistncorporated...Parker/HunterIncorporated...............................H.O.Peet8Co.IncPhilips,Appel&Walden,Inc..............................ThePierce,Wulbern,MurpheyCorp...................Piper,Jeffrey8Hopwoodincorporated..............NumberofShares7,00013,0007,00041,0007,00013,0007,0007,00013,00013,0007,00041,00013,00030,00013,00013,00041,00020,0007,00041,0007,00020,00041,00041,00013,00020,0007,00030,0007,0007,00020,00020,00020,00020,00041,00030,0007,0007,0007,00020,00054 Prescott,Ball&Turben.Raymond,James&Associates,Inc...................TheRobinson-HumphreyCompany,Inc............Wm.C.Roney&Co..R.Rowland&Co.~Incorporated.........................SalomonBrothers..H.B.Shalne&Co.~Inc.ShearsonHaydenStoneInc...............................Shuman,Agnew&Co.~Inc................................Simpson,Emery&Company,Inc.......................SmithBarney,Harrisupham&Co.IncorporatedE.W.SmithCo.Stilel,Nicolaus&CompanyIncorporated...........NumberofShares20,0007,00020,0007,00013,00041,0007,00041,00020,0007,00041,0007,00013,000Sutro&Co.tncorporated.........................ThomsonMcKinnonSecuritiesInc..........Tucker,Anthony&R.L.Day,Inc............Vercoe&CompanyInc...WarburgParibasBeckerIncorporated.....Weeden&Co.Incorporated....................Wertheim&Co.,Inc.......Wheat,FirstSecurities,Inc......................White,Weld&Co.Incorporated..............DeanWitterReynoldsInc........................WarrenW.York&Co.,Inc.......................Total.NumberofShares20,00020,00020,0007,00041,00020,00041,00020,00041,00041,00030,0003,000,000TheUnderwritingAgreementprovidesthattheobligationsoftheUnderwritersaresubjecttocertainconditionsprecedent.ThenatureoftheunderwritingcommitmentissuchthattheUnderwriterswillbeobligatedtopurchaseallofthesharesofCommonStockofferedherebyprovidedthat,undercertainconditionsinvolvingdefaultsbyoneormoreoftheUnderwriterswhichaggregatemorethan300,000shares,theCompanymayeitherterminatesuchAgreementorrequireeachnon-defaultingUnderwritertopurchasethenumberofsharessetforthoppositeitsnameaboveplus1/9ofsuchnumberofshares.TheCompanyhasbeenadvisedbyTheFirstBostonCorporation,DrexelBurnhamLambertIncorporated,BacheHalseyStuartShields,IncorporatedandMerrillLynch,Pierce,Fenner8SmithIncorporated,asRepresentativesoftheUnderwriters,thattheUnderwritersproposetooffersuchCommonStocktothepublicinitiallyatthepublicofferingpricedeterminedasprovidedonthecoverpageofthisProspectusand,throughtheRepresentatives,tocertaindealersatsuchpricelessaconcessionofnotmorethanepershare;thattheUnderwritersandsuchdealersmayallowadiscountofnotmorethanrfpershareonsalestootherdealers;andthatthepublicofferingpriceandconcessionsanddiscountstodealersmaybechangedbytheRepresentatives.5'5 PENNSYLVANIAPOWER6LIGHTCOMPANYAK."PB4IA'IYLVAMA'."'ISERVICEAREAIYOHO.~~"SI'=petaoYI.YAIOAII.iowa'+%AiL-,i)I'alSIIIAhO,'.VA-'WALILIOIAUP~=a'--j+WNLIAMAAOAv0~LOOMLMIAOLLWIAMMOi'AZLalONSaaAAToascRftKNLAONOTI4OMIAAAIAMMO~I~IVAIAA-'m~oaaavaaawo~LINLLNaaaNIOWN~j~l&ADALAMAJkf~"IaYORK~oeguGENERATINGSTATIONS PARTII.INFORMATIONNOTREQUIREDINPROSPECTUS.Item13.OtherExpensesofIssuanceandDistribution.SecuritiesandExchangeCommissionregistrationfee...Stockexchangelistingfees.Printingandengraving.FeesandexpensesofTransferAgentandRegistrar......Legalfees.Accountingfees.PostageBlueSkyfeesandexpensesMiscellaneous..Total.$13,4258,00080,0001,00027,0005,0008,5004,5002,575$150,000AlloftheaboveexcepttheSecuritiesandExchangeCommissionregistrationfeeareestimated.Item14.RelationshipivithRegistrantofExpertsnamedinStatement.Referenceismadetothecaptions"Experts"and"LegalOpinions"intheProspectus.Item15.IndemnificationofDirectorsandefieers.ArticleVIIoftheBy-LawsoftheCompanyreadsasfollows:"IndemnificationofDirectors,Officers,Etc.SEGTIQN7.01.DirectorsandOvers;ThirdPartyActions.Thecorporationshallindemnifyanydirectororofficerofthecorporationwhowasorisapartyoristhreatenedtobemadeapartytoanythreatened,pendingorcompletedaction,suitorproceeding,whethercivil,criminal,administrativeorinvestigative(otherthananactionbyorintherightofthecorporation)byreasonofthefactthatheisorwasanauthorizedrepresentativeofthecorporation(which,forthepurposesofthisArticle,shallmeanadirector,officer,employeeoragentofthecorporation,orapersonwhoisorwasservingattherequestofthecorporationasadirector,officer,employeeoragentofanothercorporation,partnership,jointventure,trustorotherenterprise)againstexpenses(includingattorneys'ees),judgments,finesandamountspaidinsettlementactuallyandreasonablyincurredbyhiminconnectionwithsuchaction,suitorproceedingifheactedingoodfaithandinamannerhereasonablybelievedtobein,ornotopposedto,thebestinterestsofthecorporation,and,withrespecttoanycriminalactionorproceeding,hadnoreasonablecausetobelievehisconductwasunlawful.Theterminationofanyaction,suitorproceedingbyjudgment,order,settlement,conviction,oruponapleaofnolocontendereoritsequivalent,shallnot,ofitself,createapresumptionthatthepersondidnotactingoodfaithandinamannerwhichhereasonablybelievedtobein,ornotopposedto,thebestinterestsofthecorporation,and,withrespecttoanycriminalactionorproceeding,hadreasonablecausetobelievethathisconductwasunlawful.SEcl'toN7.02.DirectorsandOgcers;DerivativeActions.Thecorporationshallindemnifyanydirectororofficerofthecorporationwhowasorisapartyoristhreatenedtobemadeapartytoanythreatened,pendingorcompletedactionorsuitbyorintherightofthecorporationtoprocureajudgmentinitsfavorbyreasonofthefactthatheisorwasanauthorizedrepresentativeofthecorporation,againstexpenses(includingattorneys'ees)actuallyandreasonablyincurredbyhiminconnectionwiththedefenseorsettlementofsuchactionorsuitifheactedingoodfaithandina 444t4~444ttII44444~:4~I~44~4,44I~4444II~'1I4I-'4~'"'kf=4'PI4 mannerhereasonablybelievedtobein,ornotopposedto,thebestinterestsofthecorporationandexceptthat'noindemnificationshallbemadeinrespectofanyclaim,issueormatterastowhichsuchpersonshallhavebeenadjudgedtobeliablefornegligenceormisconductintheperformanceofhisdutytothecorporationunlessandonlytotheextentthatthecourtofcommonpleasofthecountyinwhichtheregisteredofficeofthecorporationislocatedorthecourtinwhichsuchactionorsuitwasbroughtshalldetermineuponapplicationthat,despitetheadjudicationofliabilitybutinviewofallthecircumstancesofthecase,suchpersonisfairlyandreasonablyentitledtoindemnityforsuchexpenseswhichthecourtofcommonpleasorsuchothercourtshalldeemproper.SEGTIQN7.03.EmployeesandAgents.Totheextentthatanauthorizedrepresentativeofthecorporationwhoneitherwasnorisadirectororofficerofthecorporationhasbeensuccessfulonthemeritsorotherwiseindefenseofanyaction,suitorproceedingreferredtoinSections7.01and7.02ofthisArticleorindefenseofanyclaim,issueormattertherein,heshallbeindemnifiedbythecorporationagainstexpenses(includingattorneys'ees)actuallyandreasonablyincurredbyhiminconnectiontherewith.Suchanauthorizedrepresentativemay,atthediscretionofthecorporation,beindemnifiedbythecorporationinanyothercircumstancestoanyextentifthecorporationwouldberequiredbySections7.01or7.02ofthisArticletoindemnifysuchpersoninsuchcircumstancestosuchextentifhewereorhadbeenadirectororofficerofthecorporation.SEGTloN7.04.ProcedureforEffectingIndemnification.IndemnificationunderSections7.01,7.02or7.03ofthisArticleshallbemadewhenorderedbycourt(inwhichcasetheexpenses,includingattorneys'ees,oftheauthorizedrepresentativeinenforcingsuchrightofindemnificationshallbeaddedtoandbeincludedinthefinaljudgmentagainstthecorporation)andmaybemadeinaspecificcaseuponadeterminationthatindemnificationoftheauthorizedrepresentativeisrequiredorproperinthecircumstancesbecausehehasmettheapplicablestandardofconductsetforthinSections7.01or7.02ofthisArticle.Suchdeterminationshallbemade:(1)Bytheboardofdirectorsbyamajorityvoteofaquorumconsistingofdirectorswhowerenotpartiestosuchaction,suitorproceeding,or(2)Ifsuchaquorumisnotobtainable,or,evenifobtainableamajorityvoteofaquorumofdisinteresteddirectorssodirect,byindependentlegalcounselinawrittenopinion,or(3)Bytheshareholders.SEGTIQN7.05.AdvancingExpenses.Expenses(includingattorneys'ees)incurredindefendingacivilorcriminalaction,suitorproceedingshallbepaidbythecorporationinadvanceofthefinaldispositionofsuchaction,suitorproceeding,uponreceiptofanundertakingbyoronbehalfofadirectororofficertorepaysuchamountunlessitshallultimatelybedeterminedthatheisentitledtobeindemnifiedbythecorporationasrequiredinthisArticleorasauthorizedbylawandmaybepaidbythecorporationinadvanceonbehalfofanyotherauthorizedrepresentativewhenauthorizedbytheboardofdirectorsuponreceiptofasimilarundertaking.SEGTIoN7.06.ScopeofArticle.Eachpersonwhoshallactasanauthorizedrepresentativeofthecorporation,shallbedeemedtobedoingsoinrelianceuponsuchrightsofindemnificationasareprovidedinthisArticle.TheindemnificationprovidedbythisArticleshallnotbedeemedexclusiveofanyotherrightstowhichthoseseekingindemnificationmaybeentitledunderanyagreement,voteofshareholdersordisinteresteddirectors,statuteorotherwise,bothastoactioninhisofficialcapacityandastoactioninanothercapacitywhileholdingsuchofficeorposition,andshallcontinueastoapersonwhohasceasedtobeanauthorizedrepresentativeofthecorporationandshallinuretothebenefitoftheheirs,executorsandadministratorsofsuchaperson."DirectorsandofficersoftheCompanymayalsobeindemnifiedincertaincircumstancespursuanttothestatutoryprovisionsofgeneral.applicationcontainedinthePennsylvaniaBusinessCorporationLaw. InsofarasindemnificationforliabilitiesarisingundertheSecuritiesActof1933maybepermittedtodirectors,oScersandcontrollingpersonsoftheCompanypursuanttotheforegoingprovisions,orotherwise,theCompanyhasbeeninformedthatintheopinionoftheSecuritiesandExchangeCommissionsuchindemnificationisagainstpublicpolicyasexpressedintheActandis,therefore,unenforceable.Intheeventthataclaimforindemnificationagainstsuchliabilities(otherthanthepaymentbytheCompanyofexpensesincurredorpaidbyadirector,oScerorcontrollingpersonoftheregistrantinthesuccessfuldefenseofanyaction,suitorproceeding)isassertedbysuch'director,officerorcontrollingpersoninconnectionwiththesecuritiesbeingregistered,theCompanywill,unlessintheopinionofitscounselthematterhasbeensettledbycontrollingprecedent,submittoacourtofappropriatejurisdictionthequestionwhethersuchindemnificationbyitisagainstpublicpolicyasexpressedintheActandwillbegovernedbythefinaladjudicationofsuchissue.ReferenceisalsomadetotheformofUnderwritingAgreement,filedasExhibit1hereto,whichcontainsprovisionsforindemnificationoftheCompanyanditsdirectorsandoScersbytheseveralUnderwritersagainstcertaincivilliabilitiesforinformationfurnishedbytheUnderwriters.TheCompanypresentlyhasaninsurancepolicywhich,amongotherthings,includesliabilityinsurancecoverageforoScersanddirectors,witha$20,000deductibleclause,underwhichoScersanddirectorsarecoveredagainstany"loss"byreasonofpaymentofdamages,judgments,settlementsandcosts,aswellaschargesandexpensesincurredinthedefenseofactions,suitsorproceedings."Loss"isspecificallydefinedtoexcludefinesandpenalties,aswellasmattersdeemeduninsurableunderthelawpursuanttowhichtheinsurancepolicyshallbeconstrued.Thepolicyalsocontainsotherspecificexclusions,includingillegallyobtainedpersonalprofitoradvantage,anddishonesty.ThepolicyalsoprovidesforreimbursementtotheCompanyforlossincurredbyhavingindemnifiedoScersordirectorsasauthorizedbystatestatute,companyby-laws,oranyotheragreement.Item16.TreatmentofProceedsfromStorktobeRegistered.Inapplicable.Item17.OtherDocumentsFiledasaPartoftheRegistrationStatement.(a)StatementsofeligibilityandqualificationofpersonsdesignatedtoactastrusteeunderanindenturetobequalifiedundertheTrustIndentureActof1939.Inapplicable.(b)Exhibits.IncorporationbyReferenceExbibltNo.2(a)-12(a)-2-FormsofAgreementAmongUnderwritersandUnderwritingAgreement-SpecimenofCommonStockCertificate-CopyofRestatedArticlesofIncorporation.'reviousFilingRegistrationStatement(No.2-9140)RegistrationStatement(No.2-60291)PreviousExhibitDesignation2(a)-22(a)-2(i)-AmendmenttoArticlesofIncorporation2(a)-2(ii)-AmendmenttoArticlesofIncorporation 'PC IncorporationbyReferenceExhibitNo.2(a)-3-CopyofBy-lawsPreviousFilingPreviousExhibitDesignation2(a)-42(a)-52(a)-62(a)-72(a)-82(a)-92(a)-102(a)-112(a)-122(a)-132(a)-142(a)-152(a)-162(a)-172(a)-182(a)-192(a)-202(a)-212(a)-222(a)-23-MortgageandDeedofTrust,datedasofOctoberI,1945,betweentheCompanyandGuarantyTrustCompanyofNewYork(nowMorganGuarantyTrustCompanyof,NewYork),asTrustee-Supplement,datedasofJulyI,1947,tosaidMortgageandDeedofTrust-Supplement,datedasofDecemberI,1948,tosaidMortgageandDeedofTrust-Supplement,datedasofFebruaryI,1950,tosaidMortgageandDeedofTrust-Supplement,datedasofMarchI,1953,tosaidMortgageandDeedofTrust-Supplement,datedJulyI,1954,tosaidMort-gageandDeedofTrust-Supplement,datedasofAugustI,1955,tosaidMortgageandDeedofTrust-Supplement,datedasofDecemberI,1961,tosaidMortgageandDeedofTrust-Supplement,datedasofMarchI,1964,tosaidMortgageandDeedofTrust-Supplement,datedasofJuneI,1966,tosaidMortgageandDeedofTrust-Supplement,datedasofNovemberI,1967,tosaidMortgageandDeedofTrust-Supplement,datedasofDecemberI,1967,tosaidMortgageandDeedofTrust-Supplement,datedasofJanuaryI,1969,tosaidMortgageandDeedofTrust,-Supplement,datedasofJuneI,1969,tosaidMortgageandDeedofTrust-Supplement,datedasofMarchI,1970,tosaidMortgageandDeedofTrust-Supplement,datedasofFebruaryI,1971,tosaidMortgageandDeedofTrust-Supplement,datedasofFebruaryI,1972,tosaidMortgageandDeedofTrust-Supplement,datedasofJanuaryI,1973,tosaidMortgageandDeedofTrust-,Supplement,datedasofMayI,1973,tosaidMortgageandDeedofTrust-Supplement,datedasofAprilI,1974,tosaidMortgageandDeedofTrustRegistrationStatement(No.2-5872)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-19255)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-19255)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)7(c)2(a)-52(a)-62(a)-72(a)-82(b)-52(a)-102(b)-72(a)-122(a)-132(a)-142(a)-152(a)-162(a)-172(a)-182(a)-192(a)-202(a)-212(a)-222(a)-2311-4 F,1 incorporationbyReferenceExhibitNo.2(a)-242(a)-252(a)-262(a)-272(a)-282(a)-292(a)-302(a)-312(a)-322(a)-332(a)-342(a)-352(a)-36-Supplement,datedasofOctober1,1974,tosaidMortgageandDeedofTrust-Supplement,datedasofMay1,1975,tosaidMortgageandDeedofTrustPreviousFilingRegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)-Supplement,datedasofNovember1,1975,toRegistrationStatementsaidMortgageandDeedofTrust(No.2-54831)-Supplement,datedasofDecember1,1976,tosaidMortgageandDeedofTrust-Supplement,datedasofDecember1,1977,tosaidMortgageandDeedofTrust-MortgageandDeedofTrust,datedasofFebruary15,1937,betweenTheScrantonElec-tricCompany(towhichcompanytheCompanyissuccessorbymerger)andChemicalBank&TrustCompany(nowChemicalBank)andHowardB.Smith(P.J.Gilkeson,successor),asTrustees-Supplement,datedasofNovember1,1946,tosaidMortgageandDeedofTrust-Supplement,datedasofApril1,1948,tosaidMortgageandDeedofTrust-Supplement,datedasofMay15,1952,tosaidMortgageandDeedofTrustRegistrationStatement(No.2-57633)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-6289)Form1-MD,RegistrationStatement(No.2-6289)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)-InstrumentprovidingforresignationofIndivid-ualTrusteeandappointmentofsuccessorIndi-vidualTrusteeundersaidMortgageandDeedofTrustRegistrationStatement(No.2-60291)-Supplement,datedasofSeptember1,1952,toRegistrationStatementsaidMortgageandDeedofTrust(No.2-60291)-Supplement,datedasofJanuary31,1956,toRegistrationStatementsaidMortgageandDeedofTrust(No.2-60291)-Supplement,datedJanuary31,1956,tosaidRcgistrationStatementMortgageandDeedofTrust(No.2-19255)PreviousExhibitDesignation2(a)-242(a)-252(a)-262(a)-262(a)-28DB-12(a)-312(a)-32,2(a)-332(a)-342(d)-62(a)-362(a)-372(a)-382(a)-392(a)-40-InstrumentprovidingforresignationofIndivid-ualTrusteeandappointmentofsuccessorIndi-vidualTrusteeundersaidMortgageandDeedofTrust-InstrumentprovidingforresignationofIndivid-ualTrusteeandappointmcntofsuccessorIndi-vidualTrusteeundersaidMortgageandDeedofTrust-LoanAgreementdatedFebruary9,1973,be-tweentheCompanyandTheChaseManhattanBank,N.A.,asamended-PreferredStockPurchaseAgreement,datedJuly11,1973,betweentheCompanyandThePrudentialInsuranceCompanyofAmericaRegistrationStatement(No.2-60291)RegistrationStatement(No.2-58290)2(a)-372(a)-37 IncorporationbyReferenceExhibitNo.2(a)-412(a)-423(a)-PreferenceStockPurchaseAgreement,datedSeptember22,1975,betweentheCompanyandAlcoStandardCorporation-CompositeConformedCopyofPreferredStockPurchaseAgreement,datedOctober11,1977,betweentheCompanyandthepurchasersnamedtherein-OpinionofEdwardM.Nagel,Esq.,withrespecttolegalityofsecuritiesbeingregisteredhere-underPreviousFilingRegistrationStatement(No.2-60291)PreviousExhibitDesignation2(a)-423(b)3(c)I4(a)4(b)S(a)-OpinionofMessrs.SimpsonThacher&Bartlettwithrespecttolegalityofsecuritiesbeingregis-teredhereunder-ConsentofPaulWeirCompanyIncorporated-ArticleVIIoftheCompany'sBy-Laws,relatingtoindemnificationofdirectorsandoScers,issetforthinItem15,towhichreferenceisherebymade-CopyofMemorandumofExcessLiabilityIn-surance,datedDecember31,1972,CoveringExcessPublicLiability&PropertyDamage,includingErrorsandOmissions,EmployeeBen-efitsandDirectorsandOScersLiability-CopyofCoalSalesAgreement,datedJanuary1,1972,betweentheCompanyandPennsylva-niaMinesCorporation(formerlyGreenwichCollieriesCompany)RegistrationStatement(No.2-51907)RegistrationStatement(No.2-42777)4(b)5(b)5(b)-CopyofInterconnectionAgreement,datedRegistra'tionStatementFebruary23,1965,betweenPublicService(No.2'-26170)Electric&GasCompanyandtheCompany13(a)5(c)-CopyofInterconnectionAgreement,datedFebruary19,1965,betweenPhiladelphiaElec-tricCompanyandtheCompanyRegistrationStatement(No.2-26170)13(b)5(c)-1-CopyofSupplementalAgreement,datedJan-RegistrationStatementuary27,1967,tosaidInterconnectionAgree-'No.2-26170)ment13(b)-15(c)-25(d)5(e)-CopyofSupplementalAgreement,datedOcto-ber20,1969,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedApril9,1974,betweenNewYorkPowerPoolGroup,andPennsylvania-NewJersey-MarylandGroup-CopyofInterconnectionAgreement,datedSeptember26,1956,amongPublicServiceElectric&GasCompany,PhiladelphiaElectricCompany,theCompany,BaltimoreGas&ElectricCompany,PennsylvaniaElectricCom-pany,MetropolitanEdisonCompany,NewJerseyPower&LightCompanyandJerseyCentralPower&LightCompanyRegistrationStatement(No.2-35654)RegistrationStatement(No;2-51907)RegistrationStatement(No.2-60291)5(c)-25(e)5(e) IncorporationbyReferenceExhibitNo5(e)-1-CopyofSupplementalAgreement,datedJan-uary28,1965,tosaidInterconnectionAgree-mentPreviousFilingRegistrationStatement(No.2-26170)PreviousExhibitDesignation13(d)-15(e)-25(e)-35(e)-45(e)-55(f)5(f)-1-CopyofSupplemententitled"AppendixAMe-terLocations",datedJuly28,1972,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedApril1,1974,to,saidInterconnectionAgreement-CopyofSchedules5.02and5.03,efFectiveforfilingAugust1,1974,tosaidInterconnectionAgreement-CopyofSupplemeritalAgreement,datedJune15,1977,tosaidInterconnectionAgreement-CopyofConowingoBackwaterAgreement,datedFebruary20,1926,amongPennsylvaniaWater&PowerCompany(towhichcompanytheCompanyissuccessorbymerger),theSusquehannaPowerCompany,theSusque-hannaElectricCompany,andPhiladelphiaElectricCompany-CopyofSupplementalLetterAgreement,datedMarch1,1976,tosaidConowingoBackwaterAgreementRegistrationStatement(No.2-51907)RegistrationStatement(No.2-51312)RegistrationStatement(No.2-52931)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-4254}RegistrationStatement(No.2-57633)5(f)-25(f)-45(e)-15(e)-5I-145(g)-15(f)-2-CopyofSupplementalLetterAgreement,datedRegistrationStatementAugust5,1977,tosaidConowingoBackwater(No.2-60291)Agreement5(f)-25(g)5(h)5(i)5(j)5(k)-CopyofPowerSupplyContract,datedasofJune1,1955,amongBaltimoreGas&ElectricCompany,theCompany,andSafeHarborWa-terPowerCorporation-CopyofAgreementontheschedulinganddispatchingofSafeHarborandHoltwoodProj-ects,datedasofJune1,1955,amongSafeHarborWaterPowerCorporation,BaltimoreGas&ElectricCompanyandtheCompany-CopyofTransmissionContract,datedasofJuly20,1960,amongtheCompany,SafeHarborWaterPowerCorporationandBaltimoreGas&ElectricCompany-MemorandumofAgreementregardingKey-stoneElectricGeneratingStation,datedDecember7,1964,betweentheCompanyandAtlanticCityElectricCompanyctal.-KeystoneOperatingAgreement,datedDecem-ber1,1965,betweenPennsylvaniaElectricCompanyandtheCompanyetal.RegistrationStatement(No.2-14608)RegistrationStatement(No.2-14608)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)13(o)13(p)13(11)5(j)5(k) IncorporationbyReferenceExhibitNo.5(l)5(m)5(m)-15(n)5(n)-15(o)5(p)-15(p)-25(p)-35(p)-45(p)-55(p)-65(p)-75(p)-85(q)5(q)-1-MemorandumofOwners'greementRegard-ingConemaughSteamElectricStation,datedAugust1,1966,betweentheCompanyandAtlanticCityElectricCompanyetal.-ConemaughOperatingAgreement,datedDecember1,1967,betweenPennsylvaniaElec-tricCompanyandtheCompanyetal.-SupplementNo.1,datedJune'4,1969,tosaidConemaughOperatingAgreement-CopyofInterconnectionAgreement,datedMay31,1968,betweenPennsylvaniaElectricCom-panyandtheCompany-CopyofAppendixB,Revision2,datedOctober1,1971,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedAu-gust1,1935,betweenLuzerneCountyGas&ElectricCorporation(nowUGICorporation)andtheCompany-CopyofSupplementalAgreement,datedJune1,1960,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedJanuary31,1968,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedFebruary6,1969,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedMarch27,1970,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedOctober10,1972,tosaidInterconnectionAgreement-CopyofAmendmenttosaidSupplementalAgreement,datedMay1,1973,tosaidInter-connectionAgreement-CopyofSupplementalAgreement,datedDecember11,1974,tosaidInterconnectionAgre;.ment-CopyofSupplementalAgreement,datedApril22,1975,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedApril26,1965,betweenWestPennPowerCompanyetal.andtheCompanyetal.-CopyofSchedule7.01,issuedMay4,1967,tosaidInterconnectionAgreementPreviousFilingRegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-42013)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-33042)RegistrationStatement(No.2-33042)RegistrationStatement(No.2-38149)RegistrationStatement(No.2-46508)RegistrationStatement(No.2-49227)RegistrationStatement(No.2-52693)RegistrationStatement(No.2-52931)RegistrationStatement(No.2-26170)"'egistrationStatement(No.2-30918)PreviousExhibitDesignation5(1)5(m)5(m)-14(J)5(k)-113(J)13(j)-15(I()-25(k)-35(I()-45(1)-55(1)-65(1)-75(1)-813(1()4(1)-15(q)-2-CopyofSchedule1.05,issuedDecember22,RegistrationStatement1971,tosaidInterconnectionAgreement(No.2-50488)5(m)-2 IncorporationbyReferenceExhibitNo.5(q)-35(q)-45(q)-55(r)5(r)-15(r)-25(s)5(s)-15(s)-25(t)5(t)-15(t)-25(t)-35(t)-45(t)-55(t)-65(t)-75(t)-8-CopyofSchedules1.06,5.02,6.02and9.01,datedNovember14,1974,tosaidInter-connectionAgreement-CopyofSchedule4.03,issuedFebruary9,1976,tosaidInterconnectionAgreement-CopyofSchedule7.03,datedAugust16,1976,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedSeptember30,1965,betweenTheClevelandElectricIlluminatingCompanyandtheCom-panyetal.-CopyofSchedule8.02,issuedMarch24,1975,tosaidInterconnectionAgreement-CopyofSchedules1.02,4.02,5.02,6.02,7.02and9.01,datedNovember12,1975tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedSeptember30,1965,betweenVirginiaElectricandPowerCompanyandtheCompanyetal.-CopyofSchedule7.0I,issuedJune20,1967,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedSeptember1,1976,tosaidInterconnectionAgreement-CopyofInterconnectionAgreement,datedOctober30,1964,betweenMetropolitanEdisonCompanyandtheCompany-CopyofSupplementalAgreement,datedSeptember29,1967,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedMay20,1968,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedOcto-ber4,1968,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedNovember22,1968,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedJune26,1970,tosaidInterconnectionAgreement-CopyofAppendixB,Revision9,datedMay25,1971,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedJune21,1974,tosaidInterconnectionAgreement-CopyofRevisiontoAppendixC,datedSeptember10,1974,tosaidInterconnectionAgreementPreviousFilingRegistrationStatement(No.2-52693)RegistrationStatement(No.2-56389)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-52931)RegistrationStatement(No.2-56389)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-26170)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-33042)RegistrationStatement(No.2-38149)RegistrationStatement(No.2-40765)RegistrationStatement(No.2-51907)RegistrationStatement(No.2-52693)PreviousExhibitDesignation5(m)-35(m)-45(m)-513(1)5(n)-25(n)-213(m)4(n)-15(o)-213(n)4(o)-14(o)-24(o)-35(o)-45(o)-65(p)-65(p)-105(p)-11
IncorporationbyReferenceExhibitNo.5(t)-95(t)-105(t)-115(u)5(u)-I5(u)-25(u)-35(u)-45(u)-55(u)-65(u)-75(v)5(w)5(w)-I5(x)5(y)-CopyofRevisiontoAppendixC,datedOctober30,1974,tosaidInterconnectionAgreement-CopyofRevisiontoRateSchedule,datedApril28,1975,tosaidInterconnectionAgreement-CopyofSupplementalAgreement,datedApril5,1976,tosaidInterconnectionAgreement-CopyofthcExtraHighVoltageTransmissionSystemAgreement,datedApril27,1967,be-tweentheCompanyandPublicServiceElectric&GasCompany,etal.-CopyofSchedule13.02,issuedMarch26,1969,inconnectionwithsaidAgreement-CopyofSupplementalAgreement,datedOcto-ber17,1969,tosaidAgreement-CopyofOperatingandMaintenanceAgree-ments,datedasofFebruaryI,1970,in'con-nectionwithsaidAgreemcnt-CopyofSchedules11.04and12.03,issuedJuly16,1971,inconnectionwithsaidAgreement-CopiesofRevisionstoScheduleA,issuedJan-uaryI,1975andMayI,1975,tosaidSchedule12.03-CopyofSupplementalAgreement,datedMay17,1972,tosaidAgreement-CopyofSchedules2.03,3.03,4.03,6.02and8.04,issuedJuly29,1976,tosaidAgreement-CopyoftheSusquehanna-Eastern500KVTransmissionSystemAgreement,dateasofApril30,1976,betweentheCompanyandPublicServiceElectricandGasCompany,etal.-CopyofMid-AtlanticAreaCoordinationAgreement,datedApril23,1971,betweentheCompanyandAtlanticCityElectricCompany,etal.-CopyofAgreementonCoordinatedProgramforReductioninEnergyUse,datedAprilI,1977,betweentheCompanyandAtlanticCityElectricCompany,etal.-Copyof115KVSeward-ConemaughInter-connectionFacilitiesAgreement,datedMarch2,1970,betweenPennsylvaniaElectricCom-panyandtheCompany,etal.-PipelineSystemContract,datedasofJune22,1972,betweentheCompanyandGulfInterstatcEngineeringCompanyPreviousFilingRegistrationStatement(No.2-52693)RegistrationStatement(No.2-52931)RegistrationStatement(No.2-56389)RegistrationStatement(No.2-30918)RegistrationStatement(No.2-33042)RegistrationStatement(No.2-35654)RegistrationStatement(No.2-38149)RegistrationStatement(No.2-42013)RegistrationStatement(No.2-54831)RegistrationStatement(No.2-45713)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-57633)RegistrationStatement(No.2-40765)RegistrationStatement(No.2-60291)RegistrationStatement(No.2-38149)RegistrationStatement(No.2-45713)PreviousExhibitDesignation.5(p)-125(p)-135(p)-114(1)5(p)-I-5(p)-35(p)-45(q)-45(q)-55(q)-55(q)-75(r)5(r)5(w)-I5(r)5(u) III~IIf'IIIf'lfhl;(=III~)II IncorporalionbyReferenceExhibitNo.5(y)-I-CopyofAmendment,datedasofNovember1,1973,tosaidPipelineSystemContractIPreviousFilingRegistrationStatement(No.2-51907)PreviousExhibitDesignation5(LI)-I5(y)-2-CopyofAmendment,datedasofJanuary23,1974,tosaidPipelineSystemContractRegistrationStatement(No.2-51901)5(u)-25(y)-3-CopyofAmendment,datedasofJanuary1,RcgistrationStatement5(u)-31975,tosaidPipelineSystemContract(No.2-54831)5(y)-4-CopyofAmendment,datedasofJanuary1,RcgistrationStatement5(t)-41976,tosaidPipelineSystemContract(No.2-5290)s(z)-PollutionControlFacilitiesAgreement,dated,asofMay1,1973,betweentheCompanyandtheLehighCountyIndustrialDevelopmentAu-'hority5(aa)-CopyofPetroleumProductSalesAgreementRegistrationStatement5(y)forthesaleofresidualoil,datedasofJanuary(No.2-54299).1,1975,betweentheCompanyandAmeradaHessCorporation5(bb)-CopyofAgreement,datedasofJanuary1,RegistrationStatement5(w)1977,betweentheCompanyandAsiaticPetro-(No.2-5290)leumCorporationforthesaleofoil5(cc)-CopyofAgreement,datedasofMarch24,RegistrationStatement5(y)1977,betweentheCompanyandSunOilCom-(No.2-58290)panyofPennsylvania5(dd)-CopyofParticipationAgrccment,datedasofRegistrationStatement5(dd)March18,1977,betweentheCompanyand(No.2-60291)AlleghenyElectricCooperative,Inc.5(dd)-1-CopyofSecondTerminationAgreement,datedRegistrationStatemcnt-5(dd)-1September16,1977,betweentheCompanyand(No.2-60291)AlleghenyElectricCooperative,Inc.6-CalculationofAllocationofAllowancefor'undsUsedDuringConstructionAttributabletoFundsProvidedbyCommonStockEquity hKrII~$/I SIGNATURESPursuanttotherequirementsoftheSecuritiesActof1933,theregistranthasdulycausedthisregistrationstatementtobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized,intheCityofAllentown,andCommomvealthofPennsylvania,onthe24thdayofFebruary,1978.PENNSYLVANIAPOWER&LIGHTCOMPANYBy/S/JACKK.BUSBYJackK.Busby,ChairmanofthcBoardandChiefExecutiveOIIIccrPursuanttotherequirementsoftheSecuritiesActof1933,thisregistrationstatementhasbeensignedbelowbythcfollowingpersonsinthecapacitiesindicatedonthe24thdayofFebruary,1978.Signature/S/JACKK.BUSBYJackK.Busby,ChairmanoftheBoardandChiefExecutiveOiiiccrTitlePrincipalExecutiveOfficer/s/R.R.FoRTUNER.R.Fortune,ExecutiveVicePrcsidcnt-FinancialPrincipalFinancialandAccountingOAicerJAGKK.BUsBY,RALPHR.CRANMER,RoBERTK.CAMPBELL,EDGARL.DEssEN,R.R.FoRTUNE,HARRYA.JENSEN,VIRGINIAH.KNAUER,W.DEM-INGLEWIS,JOHNA.NOBLE,NORMANROBERTSONANDCHARLEsH.WATTsIIDirectorsBy/s/JAcKK.BvsBYJackK.Busby,Attorney-in.fact CONSENTOFINDEPENDENTCERTIFIEDPUBLICACCOUNTANTSPENNSYLYANIAPowER&LIGHTCoMPANYWeherebyconsenttotheuseinthisRegistrationStatementofouropiniondatedFebruary3,1978appearingintheProspectuswhichisapartofsuchRegistrationStatement,andtothereferencestousundertheheadings"StatementofIncome"and"Experts"insuchProspectus.HASKINS&SELLSNewYork,NewYorkFebruary24,1978(TheconsentsofEdwardM.Nagel,Esq.,Messrs.SimpsonThacher&BartlettandPaulWeirCompanyIncorporatedarefiledasexhibits3(a),3(b)and3(c),respectively,totheRegistrationStatement.) Cin/I PENNSYLVANIAPOWER4LIGHTCOMPANYALLOCATIONOFPORTIONOFALLOWANCEFORFUNDSUSEDDURINGCONSTRUCTION(AFUDC)ATTRIBUTABLETOFUNDSPROVIDEDBYCOMMONSTOCKEQUITYForYearsPriorto1977IncludedintheStatementofIncome(ThousandsofDollars)EXHIBIT6CapitalizationIncrementalRatios(a)Rate(b)FAIuivalcntRate(c)EarningsApplicableAllocationofioCommonAFUDCStockPortionofAFUDCAttributableioCommonStockEquityasaPercentageofEarningsApplicableioCommonStock1976Long-TermDebt...........................PreferredandPreferenceStock....CommonStockEquity..................51%18314.65%2.37%$13,50610.281.8510,5433.7121,1437.93%$45,192$78,74327%1975Long-TermDebt..............,...........PreferredandPreferenceStock....CommonStockEquity..................51%18314.67%13.312.38%2.403.568.34%$10,44610,53415,625$36,605$73,03221%1974Long-TermDebt...........................PreferredandPrefcrenccStock....CommonStockEquity..................51%18314.11%2.10%7.441.343.807.24%$6,0133,83710,882$20,732$67,82316%1973Long-TermDebt...........................PrcfcrredandPreferenceStock....CommonStockEquity..................51%18316.99%3.56%$6,7627.401.332,5262.995,6797.88%$14,967$49,72111%(a)AssumesthatfundsusedtofinanceconstructionduringeachyearwereprovidedinthesameproportionastheCompany'saveragecapitalizationratiosduringthefiveyearsendedDecember31,1976.(b)For1973incrementalratesweredeterminedonthebasisthatthecostoflong-termdebtandpreferredandpreferencestockfinancingwasequivalenttothecostofsecuritiesissuedintheyear.NoadjustmentwasmadeforincometaxreductionsresultingfrominterestexpenseattributabletotheportionofAFUDCprovidedbylong-termdebt.SinceFebruary1,1974,theCompanyhascomputedtheAFUDC,rateonan"after-tax"basistobeconsistentwiththetreatmentaccordedthisitemforrate-makingpurposesbythePennsylvaniaPublicUtilityCommission(PUC).Theincrementalratesusedintheabovecomputationfor1974,1975,and1976areconsistentwiththeAFUDCratecomputationfiledsemi-annuallywiththePUCwhichwerebasedonsecuritiesissuedinthetwelvemonthsprecedingthesemi-annualcomputation.Forthesamereason,effectiveFebruary1,1974,theincrementalrateforthedebtcomponentwasreducedbytherelatedincometaxreduction.(c)TheequivalentrateforeachyeariscalculatedbydividingtheamountofAFUDCrecordedduringtheyearbythebalancesoftheconstructionworkinprogressincludingtheaccumulatedAFUDC. i~I'l'L~II'L*aL~II'IILLfLiLt~L~Iy~ POWERPURCHASEAGREEMENTBETWEENPENNSYLVANIAPOWER5LIGHTCOMPANYANDALLEGHENYELECTRICCOOPERATIVE,INC.MARCH18,1977 l)),I POl<ERPURCHASEAGREEtIENTTABLEOFCONTENTSPaveMo.ArticleI,ArticleIIArticleIIIArticleIVArticleVArticleVIArticleVlIArticleVIIIArticleIXArticleXArticleXIArticleXIIArticleXIIIArticleXIVArticleXVArticleXVIArticleXVIIArticleXVIII1lefinitionsBuyBackTestEnergyEconomicRegulationAEExcessEnergyBillingandPaymentSuccessors,Assigns,TransfereesandGranteesNoticeAmendmentsCounterpartsGoverningLawBenefitofAgreementSeverabilityFailuretoEnforceProvision'sof'hisAgreemen'tArticleHeadingsNottoAffectMeaningFilingSuspensionandTerminationofthis.AgreementBestEffortsSignatures1218222324252627282930313233ExhibitAExhibitBEXHIBITSOff-siteFacilitiesOperatingCosts POWERPURCHASEAGREEMENTBETWEENPENNSYLVANIAPOWER6LIGHTCOMPANYANDALLEGHENYELECTRICCOOPERATIVE,INC.ThisAGREL'ML'NT,c>>teredintothis18thdayofMarch,1977,byandbetweenPennsylvaniaPower5LightCompany,(herein-afterPL),acorporationorganizedandexistingunderthelawsoftheCommonwealthofPennsylvania,withitscorporatehead-quartersatTwoNorthNinthStreet,Allentown,Pennsylvania18101,andAlleghenyElectricCooperative,Inc.(hereinafterAE),acorporationorganizedandexistingunderthelawsoftheCommon-wealthofPennsylvania,withitscorpo>ateheadquartersat2929NorthFrontStreet,Harrisburg,Pennsyj.vania17110.WHEREAS,PLisapublicutilityengagedinthegenera-tion,transmissionanddistributionofelectricpowerandenergyintheCommonwealthofPennsylvania,andAEisengagedinthesaleofelectricpowerandenergytoitsmembersintheCommon-wealthofPennsylvaniaandtheStateofNewJersey;andWHEREAS,PLandAE,astenantsincommon,ownaninetypercentandtenpercentundividedownershipinterest,respectively,intwonucleargeneratingunits,oneofwhichisdesignatedasSusquehannaUnit81andthesecondofwhichisdesignatedasSusquehannaUnitt2(hereinaftercollectivelyreferredtoasSusquehanna),locatedinSalemTownship,LuzerneCounty,Pennsyl-vania;.and NON,THEREFORE,Inconsiderationofthepremisesand.thecovenantshereincontained,PLandAEintendingtobelegallyboundhereby,mutuallyagreeandpromiseasfollows: ArticleI:DefinitionsAGREEMENTALLOWANCEFORFUNDSUSEDDURINGCON-STRUCTIONBILLINGMONTHBUSINESSDAYCONTRACTOPERATIONThisPowerPurchaseAgreement.TheAllowanceForFundsUsedDuringConstructionofSusquehannaasrecordedinPL'sorAE'saccountingbooksandrecordsasthecasemaybe.ForPLAllowanceforFundsUsedDuringConstruc-tionisintendedtoencompassthetermsAllowanceforFundsUsedDuringConstruc-tion,InterestChargedtoConstruction,InterestDuringConstruction,AllowanceforOtherFundsUsedDuringConstructionorAllowanceforBorrowedFundsUsedDuringConstructionasdefinedintheUniformSystemofAccountsforClassAandBUtilitiesaswasandasmaybeamendedfromtimetotime.ForAEAllowanceForFundsUsedDurj.ngConstructionisintendedtoencompassthetermsAllowanceforFundsUsedDuringCon'structionandInterestChargedtoConstructionasdefinedintheUniformSystemofAccountsPrescribedforElectricBorrogersoftheRuralElectrifi-cationAdministration.ThatcalendarmonthduringwhichpowerissoldorpurchasedpursuanttothetermsofthisAgreement.AnydayotherthanaSaturdayorSundayoradayonwhichbankinginstitutionsintheCommonwealthofPennsylvaniaarerequiredbylawnottotransactbankingbusiness..PLshallplaceSusquehannaUnitFlandSus-'uehanna82individuallyinContractOpera-tionattheearliestpracticabledatethatithasbeendeterminedthatsuchunitis,areliablesourceofcapacityandcompliesfullywithallrequirementsofallappli-cablestatutesandtherulesandregula-tionsoftheNuclearRegulatoryCommissionandsuchotherregulatoryagenciesasshallhavecompetentjurisdictionovertheplanning,design,licensing,construction,operationandmaintenanceofSusquehanna.3 Suchdatewithrespecttoeachsuchunitshallbe.thedateofContractOperationforsuchunit.PARTIESPARTYSUSQUEHANNAPt.<<ndAE.EitherE'LorAE.Thetwonucleargeneratingunitswithallon-siteauxiliariesandon-sitefacilitiesrelatedtheretodesignatedasSusquehannaUnitNlandSusquehannaUnitn2locatedinLuzerneCounty,Pennsylvania,andsuchoff-sitepropertydesignatedonExhibitA,attachedheretoandmadeaparthereofasmaybeaddedtofromtimetotimeto'eflectadditionstoSusquehannaandsub-tractedfromtimetotimetoreflectretirementsfromSusquehanna,butSusque-hannashallincl'udenotransmissionfacilities.UNITEitherSusquehannaUnit81orSusquehannaUnit82asappropriate.(EndofArticleI) ArticleII:~BuBackA.llft'ectivel)atesThepurchaseofcapacityandenergyandthepaymentthereforeprovidedforinthisArticleIIofthisAgreementshallcommenceonthedateeachUnitbeginsContractOperationandshallterminateontheninthanniversaryofthedateofContractOperationofeachrespectiveUnit.B.UnittlandUnitN2transactionsareseparateThesalesandpaymentsprovidedforinthisArticleII'ofthisAgreementwithrespecttoSusquehannaUnit81shallbeconsideredindependentandseparate'fromthesalesandpaymentsprovidedforinthisArticleIIofthisAgreementwithrespecttoSusquehannaUnit82andviceversa,exceptwithrespecttotheappropriateallocationofanysalesandpaymentsprovidedforinthisArticleIIofthisAgreementcommontobothUnits.5 C.PurchaseAmountsAEshallselltoVL<<ndPLshallpurchasefromAllafractionalpart(hereinafter'urchaseRatio)ofAE'scapacityandenergyfromSusquehannaUnitNlandSusquehannaUnitN2individuallyinaccordancewiththefollowingformula:(I)(1050)-APurchaseRatio=(I)(1050)whereIisafactordeterminedasone-tenth(O.l)plusorminusanyadjustedproportionofSusquehannaundividedownershipinterestwhichAEacquiresasaresultofprovidingoptionalfinancingtocontinueorcompletetheconstructionofSusquehannaUnit81and/orSusquehannaUnitF2,ifsaidoptionalfinancingisprovidedasaresultofPLbeingunabletoobtaintherequiredfinancinguponreasonabletermsinordertocontinueorcompletetheconstructionofSusquehannaUnitPland/orSusquehannaUnit42,andwhereAisafactorhavingthefollowingvaluesduringthe.timeperiodssetforthbelow:"A"FactorPeriod3/18/77'-5/31/816/1/81-5/31/826/1/82-5/31/836/1/83-5/31/846/1/84-5/31/85Sus.UnitPl4050607080Sus.UnitII240506070
6/1/85-5/31/866/1/86-5/31/876/1/87-terminationpursuanttoArticleII,SubpartAhereof.901051058090105l(ithrespecttoeachUnitofSusquehannaindividually,thePurchaseRatioshallbezero:(a)untileachsaidUnithasbeenplacedinCon-tractOperation;or(b)forsuchtimesasthecalculationofthePurchaseRatioyieldsanegativequantity.D.ChargesforPurchaseForthecapacityandenergypurchasedfromSusquehannaUnitHlorSusquehannaUnitN2individuallyashereincontemplated,PLshallpayeachmonthtoAEpursuanttotheproceduresspecificallysetforthinthisArticleIIanamountequaltothesumofthefollowing,multipliedbythePurchaseRatio.fortheUnit(asdefinedinthisArticleII,SubpartC):1.CarryingChargeComponentasdefinedinthisArticleII,SubpartE;2.Plus,Depr'eciationExpenseComponentasdefinedinthisArticleII,SubpartF;3.Plus,DecommissioningProvisionComponentasdefinedinthisArticleII,SubpartG;'
4.Plus,OperationandMaintenanceCostComponentdefinedinthisArticleII,SubpartH;E.CarryingChargeComponent1.TheCarryingChargeComponentforeachUnitindi-viduallyshallbeanamountequaltoth..RateBaseofAE(assetforthinthisArticleII,SubpartE-2)fortheUnitmultipliedbytheAEAdjustedCostofCapitalRatefortheUnit(assetforthinthisArticleII,SubpartE-3).42.RateBaseofAEshallbecomputedindividuallyforeachUnitandshallbetheaverageofthebalancesatthebegin-ningandtheendoftheBillingMonthforthefollowingitems:(a)Allcostsofplantin-servicerelatedtolandanddepreciableassetsapplicabletotheUnitaspermittedpursuanttotheUniformSystemofAccountsprescribedforelectricborrowersoftheRuralElectrificationAdministration,January1,1972,asitmaybeamendedfromtimetotime,includingAE'sAllowanceforFundsUsedDuringConstructionrelatedtosuchcosts;(b)Minus,amountswithheldundercontractswithcontractors,subcontractorsandotherssupplyingorconstructingequipment,services,ormaterialsrelatedtotheUnit;(c)Minus,AccumulatedReserveforDepreciationComponentwhichshallbetheamountoftheDepreciationExpenseComponent(asdefinedinthisArticleII,SubpartF)accumulatedsincetheContractOperationdate;8 (d)Minus,AccumulatedDecommissioningProvisionComponentwhichshallbetheamountoftheDecommissioningPro-.visionComponent(asdefinedinthisArticleII,SubpartG)accumulatedsincetheContractOperationdate;(e)Plus,AE'sinvestmentassociatedwitheachUnitinfabricatednuclearfuelinthereactororavailableforinstallationinthereactororremovedfromthereactor,ifany,minusaccumulatedamortizationofsuchfuel,reprocessingcostsofsuchfuel,andotherfuelcyclecostsorcreditsattributabletotheportionofsuch'nuclearfuelconsumed,allofwhichshallbebasedondatasetforthonAE'sbooksandrecords;(f)Plus,AE'sinvestmentassociatedwithorallocatedtoeachUnitinmaterialsandsuppliesandundistributedstoresexpense,ifany,allofwhichshallbebasedondatasetforthonAE'sbooksandrecords.3..AE'sAdjustedCostofCapitalRateshallbeequalto:withtheresultroundedtothefifthdecimalplace.Thequantitiesappearingintheformulaaredefinedas:I=TheaggregateofAE'sinterestaccruedduringtheBillingMonthonloans(Loans)usedtofinanceAE'sownershipinterestinitemsincludedinRateBase.9 P=AverageofthedailyamountofsaidLoansout-standingduringtheBillingMonth.B=MegawatthoursgeneratedbytheUnitinvolvedduringtheBillingMonth.C=1,050MfxNumberofHoursintheBillingMonthx65$(inthefirstBillingMonththenumberofbillinghoursshallbecomputedfromthedateofContractOperation).IntheeventthatthelawsoftheUnitedStatesarechangedsothatPLisnolongersubjecttotheFederalIncomeTaxorasimilartax,the001675shownintheformulaaboveshallbechangedto0.00750.F.DepreciationExpenseComponentTheDepreciationExpenseComponentshallbedeterminedbymultiplyingthedepreciableportionofAE'soriginalcostfortheUnitasofthebeginningoftheBillingMonth[asdefinedinthisArticleII,SubpartE-2(a)]bythreeandtwo-tenthspercent(3.2<)andthendividingthatproductobtainedbytwelve(12).G.DecommissioningProvisionComponentTheDecommissioningProvisionComponentshallbedeter-minedbymultiplyingthedepreciableportionofAE'soriginalcostforeachUnitasofthebeginningoftheBillingMonth[asdefinedinthisArticleII,SubpartE-2(a)]byone-halfofonepercent(0.54)andthendividingtheproductobtainedbytwelve>>10-H.OperationandMaintenanceCostComponentTheOperationandMaintenanceCostComponentshallheequaltothesumofthefollowi.ng:l.OperatingCostsasdefinedonExhibitB,attachedheretoandmadeaparthereof,applicabletothemonthforwhichabillwillberenderedbyPLtoAEforoperatingAE'sundividedownershipinterestinSusquehanna.2.ThecostsdirectlyassociatedwithnuclearfuelconsumedbyAEtoproducepowerforthemonth.Itisrecog-nizedbythePartiesthatasoftheexecutionofthisAgreementfinancialarrangementsandaccountingwithrespecttonuclearfuelhavenotbeenfinalized.Itis,however,intendedthatcostsdirectlyassociatedwithfuelconsumedtoproducepowerforeachmonthshallincludeaproperlyallocatedportionofspentfuelstoragecosts,fuelreprocessingcosts,finalfueldisposalcostsandfuelcyclecostsorcreditsnototherwiseprovidedforherein.(EndofArticleII) A.AEshallselltoPLandPLshallpurchasefromAEallofAE'sshareofthenetenergywhichisproducedbySusquehannaUnitNlandSusquehannaUnit!f2priortothetimeeachrespectiveUnitofSusquehannaisplacedintoContractOperation.SaidnetenergyshallhereinafterbereferredtoasAETestEnergy.B.PL.shallpaytoAEachargeforAE'sTestEnergywhichshallbecomputedmonthlyandshallequalthekilowatthoursofAETestEnergyproducedthatmonthmultipliedbytheaveragedollarpernetkilowatthourcostthatmonthofallfuelconsumedbyPL'scoal-firedsteamgeneratingunits(excludingfromsuchcomputationallnetgenerationproducedthatmonthforPL'saccountattheKeystoneandConemaughSteamElectricStationsandthefuelcostsrelatedthereto).(EndofArticleIII) ArticleIV:EconomicReulationA.ThetermEconomicRegulationshallmeanthatsituationwhereanyportionoralloftheavailablecapabilityofSusquehannaisnotplacedintooperationbecausetheoperationofthatportionorallofsuchcapabilitywouldhavetheeffectofincreasingthecostofthatoperatingsystemofwhichSusquehannaisapart[currentlythePennsylvania-NewJersey-MarylandInterconnection(PJM)].PLshalluseitsbesteffortstopredictoneachBusinessDaywhetherornotSusque-4hanna'soperationwillbelimitedbyEconomicRegulationduringsucceedingdays(uptoandincludingatleastthenextsuc-ceedingBusinessDay).PLshallnotifyAEofpredictionsthatSusquehanna'soperationwillbelimitedbyEconomicRegulationbynotlaterthan2:00P.M.ofthedaysaidpredictionismade.AstoanydaythatPLpredictsthatSusquehanna'soperationwillbelimitedbyEconomicRegulation,PLshallsupplytoAE,atAE'soptionandsubjecttothetermsandconditionssetforthinthisArticleIV,thatamountofenergywhichisequaltoAE'.sundividedownershipinterestinSusquehannamultipliedbythatportionofallofthetotalavailablecapa-bilityofSusquehannawhichisnotplacedintooperationbecauseofEconomicRegulationlessthatportionofsuche'nergywhichPLwouldhavepurchasedpursuanttoArticleIIhereof.AEshallnotifyPLifAEdesirestoreceiveenergypursuanttothetermshereofatthetimePLnotifiesAEthatSusquehannaoperationsareexpectedtobelimitedbyEconomicRegulation.-13>> B.IntheeventthatatanytimeorfromtimetotimeSusquehannashallbeinEconomicRegulation,.andPLdidnotpredictonorpriortotheprecedingBusinessDaythatSusquehannawouldbeinEconomicRegulation,PLshallsupplyandAEshallpurchasethatamountofenergywhichisequaltoAE'sundividedownershipinterestinSusquehannamultipliedbythatportionofallofthetotalavailablecapabilityofSusquehannawhichisnotplacedintooperationbecauseofEconomicRegulationlessthatportionofsuchenergywhichPLwouldhavepurchasedpursuanttoArticleIIhereof.C.AEshallpaytoPLthefollowingchargesrelatingtothesupplyofenergybyPLtoAEpursuanttoArticleIVhereofunderthetermsandconditionssetforthbelow.AllchargestoAEshallbecomputedonanhourlybasiandshallbeequaltothegreaterof:1.Theaverageof:(a)PL'sfuelcostsandvariableoperationandmaintenancecostsasdeterminedfromgeneratingstationincrementalenergycosttables[GeneratingStationIncre-mentalEnergyCostTables(CostTables)aspreparedbyPLandamendedbyPLfromtimetotimeinaccordancewithPL'snormalpracticesandprocedures]forthePLsystemgeneratingunitsandnetinterchangecoststosupplyenergytoAEpursuanttothisArticleIVwhichareoverandabovePL'ssystemfuel,operation,maintenance,andnetinter-changecostsatthetimeofsuchsupply,hadsuchsupplynottakenplace.(b)ThatincreaseinthefuelcostsandvariableoperationandmaintenancecostsasdeterminedfromtheCostTablesforSusquehannawhichwouldhave~resultedhadthatportionofthetotal <<v:iiJabIccapabilityofSusquehanna,>>hLchwasnotplacedintooperation,beo>>placedintooperation,dividedbythatportionofthetotalavailableenergyofSusquehannawhichwasnotplacedintooperationinKNHandthenthatquotientmultipliedbytheactualenergyinkilowatthourssuppliedbyPLtoAEpursuanttothisArticleIV;or2.PL'sfuelcostsandvariableoperationandmaintenancecostsasdeterminedfromCostTablesforthePLsystemgeneratingunitsandnetinterchangecoststosupplyenergytoAEpursuanttothisArticleIVwhichareoverandabovePL'ssystemfuel,operation,maintenance,andnetinterchangecostsatthetimeofsuchsupply,hadsuchsupplynottakenplace.D.TheprovisionsofthisArticleIVshallterminateintheeventandonthedayonwhichAEbecomesamemberofapowerpool.(EndofArticleIV) ArticleV:AEExcessEnerA.Ifforanyday,orfromdaytoday,AEdesirestosellorotherwisedisposeofanyportionorallofitsshareofenergywhichisproducedbySusqueh;.nnatootherthanAE'smembercooperatives,AEshallonorbeforeteno'lockA.M.ofthelastBusinessDayprecedingthedayordaysonwhichAEdesirestosellsaidenergy,firstoffer(Offer)toPLtheoptionofpurchasingsaidenergy.EachOffershallstipulatetheamountPofenergywhichAEdoesnotdesiretosellforeachhourofthedayofthesale;allAEenergywhichisactuallyproducedeachhouronthedayofthesaleinexcessofthestipulatedamountsshallbetheamountavailableforpurchasebyPL.PLshallhaveuntil2:00P.M.ofthedayoftheOffertonotifyAEoftheexercis-ingofsaidoption.l.EachOffermadebyAEandeachacceptancethereofbyPLshallbedeemedanindividualandseparatetrans-action(Transaction).2.PLshallpaytoAEmonthlyfortheactualenergypurchasedchargesrelatingtoeachTransactionwhichchargesshallbedeterminedonanhourlybasis,andshallbeequaltothegreaterof:(a)Theaverageof(l)thefuelcostsandvariable'operationandmaintenancecostsasdeterminedfromtheCostTablesforSus-quehannatoproducethatenergypurchasedbyPLpursuanttoeachTransactionand(2)thereductioninPL'sfuelcostsandvariableoperationandmaintenancecostsasdeter-minedfromtheCostTablesforthePLsystemgeneratingunitsandinterchangenetcostst II resultingdirectlyfromthepurchaseofenergyt'romAF.pursuanttoeachTransaction(ezcludi>>gthosechargesresultingFromapplic>>tio>>olthoprovisionsof.thisArticle);ov(b)ThefuelcostsandvariableoperationandmaintenancecostsasdeterminedfromtheCostTablesforSusquehannatoproducethatenergypurchasedbyPLpursuanttoeachTransaction.B.TheprovisionsofthisArticleVshallterminateintheeventandonthedayonwhichAEbecomesamemberofapowerpool~(EndofArticleV)
ArticleVI:BillinandPaymentA.AllbillssentfromPLtoAEshallbeforacalendarmonthandshallberondereQbyPLassoonaspractic-ablesubsequenttothecloseofeachcalendarmonth.AEshallmakepaymenttoPL'inimmediatelyavailablefundsonthetenth(10th)daysubsequenttotheissuancebyPLofeachbill,bywiretransfertoPL'saccountatTheFirstPennsylvaniaBank,N.A.atPhiladelphia,Pennsylvania,oranyotherbankwhichPLmaydesignateinwriting.B.IfAEshallfailtopaytoPLanysumduetoPLpursuanttothisAgreement,thereshallbeaddedtoanyoverdue.amountsinterestcompoundeddailyfromthedatesuchpaymentwasdueuntilpaidinfullwhichshallbecomputedbasedontherateofinterestineffectfromtimetotimeequaltotheminimumcommerciallendingratechargedtoresponsibleandsubstantialborrowers(primerate)byTheFirstPennsylvaniaBank,N.A.,Philadelphia,Pennsylvania,itssuccessorsandassigns,plustwopercent(2~)computedonthebasisofa360-dayyear.IfanypaymentisdueonadaynotaBusinessDay,itmaybemadeonthenextBusinessDaywithoutpremiumorpenalty.C.AllbillssentfromAEtoPLshallbeforacalendarmonth.BillsforpowerdeliveredunderArticleIII(TestEnergy)andArticleV(AEExcessEnergy)andthefollow'ingportionsofArticleII(BuyBack): l.Carryi~ig,Ch;>>pcComponentIArt.icl.ei1-)>(I)I:2.DepreciationExpenseComponent[ArticleI.lD(2)~;3.-DecommissioningProvisionComponent[ArticleIID(3)1;r4.NuclearFuelCosts[ArticleII-D(4))shallberenderedbyAEassoonaspracticablesubsequenttothecloseofthecalendarmonth.PLshallmakepaymenttoAEinimmediatelyavailablefundsonthetenth(10th)daysubsequenttotheissuancebyAEofeachbillbywiretransfertoAE'saccountatCommonwealthNationalBankinHarrisburg,PennsylvaniaoranyotherbankwhichAEmaydesignateinwriting.AstoOperationandMaintenar.,ceCostComponent[ArticleII-D(4)excludingnuclearfuelcosts]relatedtothepowertransactioncontemplatedpursuanttoArticleII(BuyBack)AEshall,onorbeforethetwenty-fifthdayofea'chmonth,commencingwiththefirstmonthpriortothefirstmonththeOperationandMaintenanceCostComponentisexpectedtobebilledpursuanttoArticleII-D(4),notifyPLoftheamountofEstimatedOperationandMaintenanceCostComponentanticipatedtobebilledunderArticleII-D(4),byAEduringthenextcalendarmonth.PLshallmakepaymenttoAEinimmediatelyavailablefunds'suchEstimatedOperationandMaintenanceCostComponent(andforthesettlementofActualOperationandMaintenanceCostComponentasdetailedbelow)bythetenthdayofthemonthimmediatelysucceedingthemont'honwhichAErenderedanesti-matedbilltoPL,bywiretransfertoAE'saccountatCommonwealth19 NationalBank,Harrisburg,PennsylvaniaoranyotherbankwhichAEmaydesignateinwriting.Onorbeforethetwenty-fifthdayofeachmonthbegin-ningwiththesecondmonthinwhichtherehavebeenOperationandMaintenanceCostComponent,AEshallnotifyPL'ofitsshareofActualOperationandMaintenanceCostComponentbillableforthepriormonth.AnydifferencebetweentheActualOperationandMaintenanceCostComponentandtheEstimatedOperationandMaintenanceCostComponentforthesamemonthshallbeshownonthenotification.AnysuchdifferenceshallbesettledbetweenthePartiesbyanadjustmenttothebillsenttoPLbyAEonthetwenty-fifthdayofeachmonthandpayableonthetenthdayofthenextmonth.D.IfPLshallfailtopaytoAEanysumduetoAE\pursuanttothisAgreement,thereshallbeaddedtoanyoverdueamountsinterestcompoundeddailyfromthedatesuchpaymentwasdueuntilpaidinfullwhichshallbecomputedbasedontherateofinterestineffectfromtimetotimeequaltotheminimumcommerciallendingratechargedtoresponsibleandsubstantialborrowers(primerate)byTheFirstPennsyl-vaniaBank,N.A.,Philadelphia,Pennsylvania,itssuccessorsandassigns,plustwopercent(2:)computedonthebasisofa360-dayyear.If.anypaymentisdueonadaynotaBusinessDayitmaybemadeonthenextBusinessDaywithoutpremiumorpenalty.E.PLandAEshalladjustallbillings,atanytime,inatimelymanner,asnecessary. -I F.PLandAEshallhavetherighttoauditandexaminetheaccounts,booksandrecordsoftheotherrelatingtothetransactionshereincontemplated,atanytimeandfromtimetotimeduringnormalbusinesshours,attheplacewheresuchaccounts,booksandrecordsarenormallymaintained,attheexpenseoftheexaminingparty,excepthowever,AEmaynothaveaccesstoanyoftheaforementioneditemswhichbythetermsunderwhichPLholdsorhasaccesstosuchitems,ifsuchitemsareclassifiedasconfidential,secret,prcprietary,orthelike.PLshalluseallbestefforts,upontherequestofAE,toobtainthenecessarypermissionfromtheholdersorownersofsuchcon-fidential,secret,orproprietaryitems,topermitAEtohaveaccesstosaiditems(anycostassociatedwithsaidpermissionshallbethesoleresponsibilityofAE).(EndofArticleVI)21 ArticleVII:Successors,Assins,TransfereesandGranteesThisAgreementshaL.lc>>uiotothebeneCitol;>>>ilhobindinguponthesuccessors,assigns,transferees,andgranteesoftheParties.AEandPLshallnotifytheotherPartyofitsintentiontoassignthisAgreement.(EndofArticleVII)22
ArticleVIII:NoticeAnynotice,request,consent,offer,acceptance,rejectionorothercommunicationrequiredbythisAgreementtobeinwritingshallbedeemedgivenwhendepositedintheUnitedStatesMail,firstclasspostageprepaid,andifgiventoPLshallbeaddressedto:PennsylvaniaPower5LightCompanyTwoNorthNinthStreetAllentown,Pennsylvania18101Attention:TreasurerandifgiventoAEshallbeaddressedto:AlleghenyElectricCooperative,Inc.2929NorthFrontStreetHarrisburg,Pennsylvania17110Attention:Mr.WilliamF.Matsonunlessa'differentofficeroraddressshallhavebeendesignatedbytherespectiveParty,bynoticeinwriting.(EndofArticleVIII) IIII ArticleIX:AmendmentsAnyamendmenttothisAgreementshallnotbecomeeffec-tiveuntilapprovedbytheAdminstratoroftheRuralElectrifica-tionAdministration.TheTerminationAgreementbyandbetweenPLandAEbearingevendateherewithshallnotbedeemedanamend-menttothisAgreement,requiringasaconditiontoitsbecomingeffectivetheapprovaloftheAdministratoroftheRuralElectri-ficationAdministration.(EndofArticleIX) A1ThisAgreementmaybeexecutedintwoormorecounter-parts,each'ofwhichshallbedeemedanoriginalbutallofwhichtogethershallconstituteoneandthesameinstrument.(EndoXArticleX) Thevalidity,interpretation,andperformanceo.fthisAgreementandofeachandeveryprovisionhereundershall,exceptasotherwiseprovidedbylaw,begovernedbythelawsoftheCommonwealthofPennsylvania.(EndofArticleXI) ArticleXII:BenefitotAv,ream<<>>tExceptascontemplatedinArticleVIIofthisAgree-ment,theprovisionsofthisAgreementareforthebenefitofthePartiesheretoandnotforanyotherpersonorentity.(EndofArticleXII)27 lII TheprovisionsofthisAgreementaresevorablc,;n>difanyprovisionshallbedeterminedtobeillegalanduncnforce-able,suchdeterminationshallinnomanneraffectanyotherprovisionhereof,andtheremainderofthisAgreementshallremaininfullforceandeffectwithoutregardtothefactthatoneorseveralprovisionsofthisAgreementmaybedeterminedfromtimetotimetobeillegalorunenforceableprovided,how-ever,thattheintentionandessenceofthisAgreementmaystillbeaccomplishedandsatisfied.(EndofArticleXIII)-28>> ArticleXIV:FailuretoEnlorcel'rovisionsofthisArcomcnt,ThefailureofanyV;artytoinsist.inanyoneormoroinstancesuponstrictperformanceofany'oftheprovisionsofthisAgreementortotakeadvantageofitsrightshereunder,shallnotbeconstruedasawaiverofanysuchprovisions,ortherelinquishmentofanysuchrights,butthesameshallcontinuetoremaininfullforceandeffect.(EndofArticleXIV) Article'XV:ArticleHeadingsNottoAffectMeaninThedescriptiveheadingsofthevariousArticlesofthis.Agreementhavebeeninsertedforconvenienceorref-erenceonlyandshallinnomannermod'ifyorrestrictanyof.thetermsorprovisionshereof.(EndofArticleXV) ArticleXVI:~FilinIfandtotheextentthatthisAgreementoranypartheieofshallberequiredtobefiled,orshallbefiledwithanyregulatoryagencyasarateorrateschedule,nothinginthisAgreementshallbeconstruedasaffectinginanywaytherightofPLtounilaterallymakeapplicationtosucha'gencyforachangeinrates,charges,classifications,orservice,oranysale,regulations,orcontractrelatingtheretounderapplicablelaws.TotheextentthatPLmakesany.,suchAEshallhavetherighttointerveneinanyproceedingfiling,involvingsuchafilingbyPLandshallhavetherighttoobjecttoanyproposedchange.(EndofArticle.XVI) II) ArticleXVII:SusensionandTerminationofthisAreementA.ThisAgreementshallexpire,terminate,andbecomenullandvoid,exceptaslimitedbySubpartBofthisArticleXVII,andexceptaslimitedbythetermsofthisSubpartAofthisArticleXVII,thirty-sixmonthssubsequenttothedateonwhichSusquehannaisnolongerusedforthepurposeofproducingelec-tricenergyforsale,exceptthatintheeventthatanearlierterminationdateissetforthinanyspecificArticleofthisAgreement,thensuch'earlierterminationdateshallbeapplicableandcontrollingwithrespecttothatArticle.B.IntheeventthatanycauseorcausesofactionwhetherinlaworinequityhavearisenpriortotheterminationofthisAgreement,saidcauseorcausesofactionshallnotexpire,terminateorbecomenullandvoidupontheexpiration,terminationandbecomingnullandvoidofthisAgreement,butsaidcauseorcausesofactionshallbeactionablepursuanttotheapplicablestatuteoflimitationortheapplicabledoctrineoflaches.C.IntheeventthateitherPLorAEisindefaultinanyofitsobligations'totheotherpursuanttoanyAgreementbetweenPLandAEbearingevendateherewith,thenallofPL'sorAE'sobligationstotheotherunderthisAgreementshallbesus-pendedandunenforceableuntilsaiddefaultiscuredbythedefaultingparty.(EndofArticleXVII)32 ArticleXVIII:BestEffortsDuringthetermofthisAgreementAEandPLshalleachuseallbesteffortstoobtainand.tokeepineffectanyandallgovernmental,regulatoryorotherauthorizations,per-mits,approvals,licenses,permissionsandapplicationsasmaybenecessaryforeachPartytoperformitsobligationsunderthisAgreement.(EndofArticleXVIII) INWITNESSWHEREOF,eachofthePartiesheretohasdulyexecutedthisAgreementinWashington,DistrictofColumbia,this18thdayofMarch,1977.PENNSYLVANIAPOWERgLIGHTCOMPANYBy:Attest:keek.Secretary;ALLEGHENYELECTRICCOOPERATIVE,INCORPORATEDBy:Attest: COMMONWEALTHOFPENNSYLVANIA)COUNTYOFOnthis,the.-"dayof1977,beforeme,aNotaryPublicinandfortheCommonwealthofPennsylvania,theundersigned,officer,personallyappearedwhoacknowledgedhimselftobethe..."~-".'."'-."-"ofaPennsylvaniacorporation,andthatheassuch~'..'-,beingauthorizedtodoso,executedtheforegoinginstrumentforthepurposesthereincontainedbysigningthenameofthecorporationbyhimselfasINWITNESSNHEREOF,Ihereuntosetmyhandandofficialseal.NOTARYPUBUQAllentwn,LohghCuny,PennsylvaniatAyComml=slo..ExpiresJuno6,1977NotaryPulac,,PennsylvaniaMyCommissionExpires: COMMONNEALTHOFPENNSYLVANIA)COUNTYOFQo.~h.,nOnthis,thelgdayof~~~"~~~.,1977,beforeme,aNotaryPublic,inandfortheCommonwealthofPennsylvania,theundersignedoFficer,personallyappearedIII.betoe&<~whoacknowledgedhimselftobetheI~u~l0of(fcglenyEl~'c-(o~t'dtiv<~j.sc.,aPennsylvaniacorporation,andthatheassuch[peg<d~+.,beingauthorizedtodoso,executedtheforegoinginstrumentforthepurposesthereincontainedbysigningthenameofthecorporationbyhimselfasPrebid~&-INWITNESSWHEREOF,Ihereuntosetmyhandandofficialseal.NotaryPulz.c,PennsylvaniaMyCommissionExpires:NoTARYcUpgic~yCommissionExpiyosJQ'}'y]$J5l7o82M'Asburg,Po. EXHIBITAOff-SiteFacilities(1)AnAir-MonitoringStation(No.7H1)locatedontheroofoftheNorthBuildingofthePennsylvaniaPower5LightCompanyGeneralOfficeatTwoNorthNinthStreet,Allen-town,Pennsylvania,LehighCounty.(2)AnAir-MonitoringStation(No.12El)locatedonlandleasedfromtheBerwickHospital,BriarCreekTownship,ColumbiaCounty,Pennsylvania,at701East16thStreet,Berwick,Pennsylvania18603.(3)AnAir-MonitoringStation(No.3D1)locatedatR.D.t2,Wapwallopen,Pennsylvania,onlandleasedfromthePondHillLilyLakeFireCompany,VillageofPondHill,LuzerneCounty,Pennsylvania.(4)AnAir-MonitoringStation(No.4Sl)attheIcthyologicalAssociatesCompanylocatedatR.D.81,Berwick,Pennsylvania18603.(5)AnAir-MonitoringStation(No.1Dl)locatedatMocanaqua,Pennsylvania,atthefollowingcoordinates:N1'0'E,45ft.'88'26',25ft.;N134',225ft~~N44',110ft.;N88'6'W,25ft.moreorless;S69'9',120ft.(6)Equipment,suppliesandmaterialscurrentlybeingconstructedbyvariousentitiesinvariousplaces,whichequip-ment,suppliesandmaterialswillbeusedontheSusquehannaplantsite. (7)UraniumOxideandUraniumHexaflorideownedbyPLlocatedinthecustodyofLuciusPitkin,Inc.andAlliedChemicalNuclearProductsDivision,bothatMetropolis,Illinois.(8)UraniumHexaflorideownedbyPLlocatedatU.S.EnergyResearchandDevelopmentAdministrationatOakRidge,Tennessee. EXHIBITBOPERATINGCOSTSOperatingCostsshallmeanallcostsandexpenses,directandindirect,incurredbyoronbehalfofPLproperlyassignabletoAE'sundividedownershipinterestinSusquehannaand100:ofallcostsandexpenses,directorindirect,incurredbyAE,oronbehalfofAEotherthantheOperatingCostsincurredbyoronbehalfofPL,properlyassignabletoSusquehanna.Suchcostsandexpenses'hallbedeterminedandallocated,inaccor-dancewith'generallyacceptedaccountingprinciples,consistentlyapplied,andshallinclude,butshallnotbelimitedtothefollowing,providedthatifanypaymentmadeorcostincurredisforthebenefitofSusquehanna,andisalsoforthebenefitofsomeotherPLfacility,thenOperatingCostsshallincludeonlythatportionofsuchpaymentorcostwhichisequitablyallocabletoSusquehannaandwhichisnototherwisepaidfor:l.Allcostsoflaborandservicesperformedwhichshallinclude,butshallnotbelimitedto:wages'tohourlyemployees,wagestosalariedemployees,shiftdifferentialandpayfortimenotworkedsuchasvacations,sickness,andothertimeoffinaccordancewithPLpoliciesandunioncontracts,costsofsocialsecuritytaxes,unemploymentinsuranceexpenses,andallotherpayrolltaxes,grouplifeinsurance,grouphos-pitalization,medicalinsurance,pensionandotheremployeebenefitplancontributions,Workmen'sCompensation,publicliabilityinsurance,accidentaldeathanddismembermentinsurance,long-termdisabilityinsurance,halthinsuranceandallotherfringebenefitsaccruingtoPL'semployees;2.Allcostsofmaterialsandsuppliesandutilitiesservicesforplantoperationandmaintenance; 23.Allcostsoftools,machineryandequipment;4.Allcostsforrentaloftools,machineryandequipmentleasedforplantoperationandmaintenance;S.-Allcostsoflicenses,fees,assessments,fines,penalties,andchargesimposedbygovernmentalregulatory,administrativeorsupervisorybodiesorentities,orbylaw;6.Allcostsofworkbyoutsidecontractors,consultants,andspecialistssuchaslawyers,engineers,accoun-tantsandothersasdeemednecessarybyPLintheoperation,maintenanceandmanagementofSusquehanna;7.Allinsurancecosts;8.Alltaxes,provided,'however,thatPLandAEshallseparatelybearthecostsoftaxeswhichareeitherimposedonPLorAEasseparateentitiesorareimposedontheseparateundividedownershipinterestsofPLorAEinSusquehanna;9.AllcostsassociatedwithmaintainingthesecurityofSusquehanna;10.Allcostsassociatedwithlowriverflow'augmentation;11.Allcostsofanynaturewhatsoeverassociatedwithanyshutdown,entombment,terminationorremovalofSusque-hanna,tobesharedbythePartiesheretoasOperatingCosts;12.AllfuelcostsnotpaidforbyAEpursuanttootheragreements;13.AlladministrativeandgeneralexpensesincurredwhichenuretothebenefitofSusquehannashallbeequitablyallocatedtoSusquehannaandshallincludebutshallnotbelimitedtothegeneralservicesandcostsofallPL'soperations,suchas:safety,accounting,payroll,computerservices,legal,personnel,training,informationservices,claimswork,generalsupervision,generalsuppliesandexpenses,auditing,communicationexpenses,researchanddevelopment,studiesandinvestigationsrelativetoSusquehanna(includingbutnotlimitedtonuclearproductionanddevelopment),andcostsofoperatingallofficebuildingsinwhichsuchservicesandgeneralcostsareincurred;toSusquehanna;14.Overheadsincurredshallbeequitablyallocated 315.ExpensesincurredandapplicabletogeneratingstationsownedandoperatedbyPLwhichcannotbechargeddirectly,tospecificgeneratingstationsshallbeequitablyallocatedtoeachofsuchgeneratingstationsincludingSusquehanna.SuchcostsandexpensesincludebutarenotlimitedtowagesandotherexpensesoftheManagerofPowerProductionorPLandhisstaff,consultantsfees,andotherexpensesofageneralnaturerelatedtogeneratingstations;16..AllcostsofloaddispatchingandSystemControl;17.Allcostsofowning(includingdepreciation)andoperatingauxiliaryorsupportingfacilitiesofPLwhichenuretothebenefitsofSusquehannashallbeequitablyallocatedtoSusquehanna.}}