ML18040B178
| ML18040B178 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 12/31/1986 |
| From: | Campbell R, Keiser H PENNSYLVANIA POWER & LIGHT CO. |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| References | |
| PLA-2820, NUDOCS 8703240134 | |
| Download: ML18040B178 (45) | |
Text
e Pennsylvania Power 8 Light Company Two North Ninth Street~Allentown, PA 18101~215 l 770-5151 Harold W.Keiser Vice President-Nuclear Operations 21 5/770-7502 MAR 19 1987 Mr.Harold Denton, Director Office of Nuclear Reactor Regulation U.S.Nuclear Regulatory Commission Washington, D.C.20555 SUSQUEHANNA STEAM ELECTRIC STATION ANNUAL FINANCIAL REPORT PLA-2820 FILE R41-2A Docket Nos.50-387 50-388
Dear Mr.Denton:
In accordance with 10CFR50.71(b),'enclosed is the 1986 annual report for Pennsylvania Power 6 Light Co.The annual report for Allegheny Electric Cooperative, Inc., will be forwarded later.Very truly yours,~~.W.Keiser Vice President-Nuclear Operations Attachment cc: NRC Document Control Desk (original)
NRC Region I Mr.L.R.Plisco-NRC Resident Inspector Mr.M.C.Thadani-NRC Project Manager I I I rl i i/~~0~~~~~~~~~~I~~'~~~~I~~~~~~I W~r r+i?w rr 4~~i~~'~I r~~~~~~~~~~~~I" COVER CONTENTS 1, t t,.tt'llkes-Barre, Pennsylvania, its Public Square aglow in light, boasts one of the most encouraging stories of economic resurgence ln PP&L's 10,000-square-mile service area.The city gained nationwide attention in 1972 as one of the hardest-hit victims of severe flooding that accom-panied Tropical Storm Agnes.The indomitable spirit of the people of the Wyoming Valley prevailed and the area is now more vibrant than ever.A gleaming brass and glass facade highlights the new F.M.Klrby Center for the Performing Arts, a refurbished 1,850-seat theater with roots going back nearly 50 years to an era of lavish and ornate movie palaces.The theater is fast becoming a cultural center in Northeast Pennsylvania, and will be the site of PP&L's corporate annual meeting in April 1988.Show-ing no signs that its square was under eight feet of water In 1972, the center of the seat of government for 200-year-old Luzerne County Is an-other Central Eastern Pennsylvania community that PP&L proudly serves.Highlights President's Letter Year in Review Financial Review Financial Statements Notes to Financial Statements Selected Financial and Operating Data Officers and Directors 1 2 4 18 23 31 38 40 CUSTOMER SERVICE PP&L's mission statement says it all: "To meet our customers'ngoing needs for economical and reliable electric service in ways that merit the trust and confidence of the public." The service PP&L provides vitally affects the dally lives of 2.5 million people In Central Eastern Pennsyl-vania.This is why PP&L has a great responsibility to those people to be a responsive, sensitive company.But sensitivity can only be conveyed by people-people who take their Jobs and their individual responsibilities seriously.
In words and pictures, on pages 4 through 17, is the story of some of the people who perpetuate PP&L's reputation for excellent customer service.Their dedication to excellence keeps PP&L's perform-ance among the best.Notice of Annual Meeting The 1987 annual meeting of share-owners will be held at 1:30 p.m.on Wednesday, April 22, 1987, at the Penn Harris Inn and Convention Center, Routes 11 and 15, Camp Hill Bypass, Camp Hill, Pa.Formal notice of the meeting and a reservation card for meeting attendance are Included with shareowners'roxy material.SERVICE AREA Pennsylvania Power&Light Co., based in Allentown, Pa., provides electric service to more than a million homes and businesses throughout a 10,000-square-mile area in 29 counties of Central Eastern Pennsylvania.
Principal cities In the PP&L service area are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wllkes-Barre and Williamsport.
lh heh tl Ot Dltltlhn Cohttol DfVI Lohleh Dltltloh Allentown HIGHLIGHTS
.Customers (a)Common Shareowners (a)..............
Electric Energy Sales, Kilowatt-hours
..Interchange Power Sales, Kilowatt-hours Electricity Generated, Kilowatt-hours Operating Revenues Capital Provided by Investors (a)......Utility Plant (a)Net Plant in Service Construction Work in Progress.........
Common Stock Data 1986 1985 1,073,146 1,055,546 147,611 151,025 80.4 Billion 28.1 Billion 11.8 Billion 16.2 Billion 41.5 Billion 42.7 Billion$2.2 Billion$2.0 Billion$5.5 Billion$5.5 Billion$5.8 Billion$5.8 Billion$0.2 Billion$0.2 Billion Return on Average Common Equity..Earnings Per Share.Dividends Declared Per Share.......Market Price Per Share(a).........Book Value Per Share (a)...........
Times Interest Earned Before Income Taxes.(a)At year-end.12.11%$8.10$2.58$86N$25.71 2.80 10.42%$2.68$2.56$28s/4$25.58 2.87 Where the PP&L Income Dollar Went in 1986 Net Cost of Energy Taxes Interest Employees Materials, Services, Rents, etc.Dividends Depreciation Earnings Reinvested 200 200 144 134 120 12%7C 20-Income includes revenues, otlier income and the allowance for funds used during construction.
PRESIDENT'S LETTER The very positive operating and financial results achieved by the company in 1986 clearly show that, with both Susquehanna generating units in commercial operation, we.now have a solid foundation in place for meeting our long-term commitments to customers and shareowners.
To succeed in today's increas-ingly competitive energy markets requires maintaining top perfor-mance in all phases of our opera-tions.This means that we must continue to provide electric power at competitive prices and with superior customer service.Fortu-nately, because of PP&L's excep-tionally strong capacity position, based on an efficient mix of coal and nuclear generation, the com-pany has never been in a better position to meet these objectives.'roviding economical and relia-ble electric service goes hand-in-hand with enhancing the com-pany's financial strength.And because both are related to suc-ceeding in the marketplace, PP&L's marketing and economic develop-ment programs are aimed at attracting and holding job-pro-ducing businesses for our service area by promoting the company's strong position as a supplier of re-liable and competitively priced electric energy.Sales and Earnings Contributing to our improved financial performance in 1986, kilowatt-hour sales to service-area customers increased 4.2 percent and total electric sales increased 8.2 percent, compared to 1985.The service-area sales growth was led by major gains in our electrically heated home market and by in-creased sales to commercial cus-tomers.Although industrial sales increased by only 1 percent, our industrial sector continues to grow and become more diversified, with net gains through plant expansions and new industries more than offsetting reduced usage for steel manufacturing.
The company's total 1986 sales in-crease of 8.2 percent reflected the benefit of the first full year of sell-ing electric power under our long-term contract with Jersey Central Power&Light Co.This contract for 945,000 kilowatts of PP&L's total generating system, and our contract with Atlantic City Elect-ric Co.for electric energy from Susquehanna, provide revenues that have helped to offset regula-tory disallowances based on rul-ings that the company presently has too much generating capacity.The marketing of electric power to other utilities will continue to provide the company with impor-tant sources of future revenue.These sales are made possible by PP&L's favorable mix of low-cost coal and uranium fuels-and by the outstanding performance of our generating units.The company's 1986 earnings of$3.10 per share were up 42 cents, or 15.7 percent, from 1985.This significant improvement is the re-sult of our continued emphasis on cost containment, including our very effective refinancing pro-gram, and increased electric energy sales.As part of our ongoing cost con-tainment program in 1986, we initiated a voluntary early retire-ment program, delayed building renovations and undertook an aggressive program to refinance higher cost securities at lower cost to improve earnings and to help keep PP&L's price for electric ser-vice as low as possible.Looking ahead, we will work hard to hold down costs, including continuation of our refinancing program that proved to be par-ticularly significant in reducing costs and improving earnings in 1986.The company's strengthened financial position also is reflected by the high quality of our 1986 earnings.Only about 5 percent of these earnings were the result of recording a non-cash allowance for funds used during construction, compared to an industry average of about 35 percent.Without the need to construct major new generating capacity for at least the balance of this century, this favorable liquidity position should continue to be a financial strength for the foreseeable future.Mark,eting and Economic Development Our aggressive marketing and economic development programs continued last year to make impor-tant contributions to the economic prosperity of the communities we serve.These programs also are designed to achieve annual in-creases in kilowatt-hour sales to support the financial health of the company while mitigating the need for future rate increases.
To achieve our economic develop-ment and kilowatt-hour sales growth objectives in today's com-petitive energy market, it's essen-tial that we keep the price for our electric service as low as possible.For that reason, we announced at last year's annual meeting our ob-jective of not raising base rates for at least the balance of this decade.Although our marketing and economic development programs continue to produce impressive re-sults, we will be expanding these ef-forts with new initiatives this year.For example, we plan to broaden our present rate incentive program by introducing new flexible pric-ing options designed to encourage existing business customers to expand their operations and to attract new industries to our ser-vice area.And we will be stepping up our efforts to find new energy-efficient electrical uses that will provide benefits for residential, commercial and industrial customers.
Customer service is the key ele-ment in the success of PP&L's marketing and economic develop-ment programs.For example, hav-ing more than 80 percent of all new residential customers choose electric space heating results from dedicated PP&L people who have earned the confidence of custo-mers.This commitment to super-ior customer service also was rec-ognized in a recent Pennsylvania Public Utility Commission report which concluded that PP&L has the lowest customer complaint rate among Pennsylvania electric utilities.
At PP&L, concern for customers goes beyond being a reliable elec-tricity supplier.It extends to being a neighbor who responds in time of need and financial hardship.That'the purpose of our customer assis-tance programs such as Operation HELP and CARES.That's what is meant when we say that PP&L's marketing programs are based on a tradition of responding to our customers'eeds.
plants demonstrated the enormous long-term benefit of the company's generating capacity.As competi-tion continues to increase, the ad-vantage of having sufficient generating capacity to meet cur-rent and future requirements becomes clearly evident.This advantage is particularly decisive when that generating capacity is operated efficiently and consists of a good mix of low-cost coal and uranium fuels.Both Susquehanna nuclear units operated very well in 1986, contin-uing the excellent record of per-formance that these two 1,050,000-kilowatt generating units have achieved since going into commer-cial operation.
Among all boiling water reactors in the nation, Sus-quehanna Unit 2 ranked first in total generation over the past two years and Unit 1 ranked second.Even though both units underwent refueling outages in 1986, they produced 11.3 billion kilowatt-hours last year and received a near-perfect rating in the Nuclear Regulatory Commission's System-atic Assessment of Licensee Per-formance report.The continued excellent perfor-mance of all of PP&L's generating plants enabled the company to sell 11.3 billion kilowatt-hours of most-ly coal-and oil-fired electric power to neighboring utilities last year, resulting in benefits to our cus-tomers of about$35 million.Because low-cost electric genera-tion is essential in meeting our corporate objectives, we have set a goal to keep PP&L's performance at the level of the best in the indus-try.In addition to allocating re-sources to achieve even higher plant availability, we plan to spend about$140 million over the next five years as part of our program to extend the useful lives of our non-nuclear power plants as long as possible.These initiatives are designed to assure that PP&L is well-posi-tioned to prosper in a more com-petitive business environment.
While many challenges lie ahead, we believe that we have built a solid foundation for the company's continued success.Our confidence is based on the talents of dedicated PP&L people and the continued support from you, our shareowners.
In the years ahead, we will continue to do all we can to assure a prosperous future for our service area and for your company.Respectfully submitted, Generation Again last year, the outstanding performance of PP&L's power Robert K.Campbell February 27, 1987 YEAR IN REVIEW Operations Employee safety-and more specifically, a fatality-free work environment-continues to be the company's number one operating priority.In 1986, the company achieved its sixth straight calendar year without an employee fatality.While the company provides the tools, equipment and training needed to help employees achieve a safe working environment, it remains for every employee to make a concerted effort to make safe work habits a part of everything they do-both on and off the job.Thirteen work groups in the company achieved more than a million work-hours without a lost-time accident.The company's safety record was again among the best of the state's seven major electric utilities-PP&L had the second-best lost-time accident record among its Pennsylvania peers.Earnings and Dividends Earnings for 1986 were$3.10 per share of common stock compared to$2.68 for 1985.The improvement in earnings resulted from a combination of increased kilowatt-hour sales, cost-containment measures, and an aggressive program to refinance high-cost securities at a lower cost.This returns earnings to about the same level achieved in 1984, when they were$3.12 per share.PP&L's quarterly dividend on common stock was increased one cent per share to 65 cents, beginning with the Oct.1, 1986, dividend.It had been 64 cents per share since April 1, 1985.Sales and Revenues Revenues for 1986 were$2.19 billion, up$212 million over the previous year.The increase came from higher sales and from the full 12 months'ffect of the$121'illion rate increase the company was granted in April 1985.A strong new-home-building market-and a record 84 percent of those new homes using electric heat-helped to boost sales to residential customers by 5 percent for the year.Commercial sales were up 6.4 percent, reflecting continued strength among retail and wholesale customers and others in the small-business sector in Central Eastern Pennsylvania.
A slight rebound in industrial sales began at midyear as the decline in steel manufacturing was offset by growth in other industries.
Use of electricity by the steel industry was down 11.7 percent in 1986, while sales to other industrial customers rose by 2.9 percent, for a composite increase of about 1 percent over the prior year.Overall, kilowatt-hour sales increased 8.2 percent over 1985.Slightly over half of the 2.3 billion kilowatt-hour increase resulted from higher sales to other utilities-primarily under long-term contracts.
Security Sales and Early Redemptions The objective of PP&L financing activities during 1986 was to take advantage of the lower interest and dividend rates that were prevalent in the capital markets throughout the year.The company was thus able to retire high-cost securities, thereby reducing its overall capital costs and improving its financial health.The$600 million of 1986 security sales consisted of four$125 million offerings of first mortgage bonds, with interest rates varying from 9 percent to 10.875 percent, and$100 million of 7 percent series preferred stock.Customer Representatives"I was surprised at how fast the PP&L telephone representative was able to arrange for electric service to our new home.We were on a tight schedule, but we were hooked up on time.I felt the company really cared about me." Lynne Rothwetter Residential Customer Quarryvit le, Pa.
Louatha Parham (left, foreground), and Sandra Shelrlch (below), Customer Representatives In P P&L's Lancaster Division Service Center.\C U4 yh 4 rX, The 79 customer representatives across PP&i's service area answered more than 1.2 million telephone inquiries last year.About 70 percent of the calls are routine-requests for new service, discon-nections, service transfers and payment arrangements.
The other 30 percent could range from"no light" calls, to children's toys tangled in company lines, to large bill inquiries or storm emergency calls.PP8 L customer representatives are not just voices at the end of telephone lines.They are people who genuinely care about the customers who contact them.For every call, customer satisfaction is the goal.
Distribution Technician Edward Smith (right), and Steno/Clerk Elaine Jones (below), In the company's Lancaster Division Service Center.//D 4" 4//Ir r.~~~i~Although they are more behind-the-scenes, Distribution Engineering employees determine what's needed to serve a customer.It may be a pole near a new building and a short span of wire, or a three-mile section of line to be built to reach another customer's property.For each installation, distribution technicians decide what materials are needed and the"route" a line will take.Each job is designed with PP&L's standards and specifications in mind, to provide the safest and most reliable service to fill a customer's needs.
YEAR IN REVIEW Distribution Technicians During 1986, the company retired a total of$475.2 million of securities through early redemption provisions:
~$225 million of first mortgage bonds in two series with interest rates of 14 percent and 15.625 percent.~$162.5 million of preference stock in four series with dividend rates ranging from 13 percent to 15 percent.~$87.7 million of preferred stock in four series with dividend rates ranging from 10.75 percent to 14 percent."My profit marginis affected by what PPBL's technicians tell me is, and is not, feasible in running electric service to one of my new homes.l depend on their advice-and they'e never let me down.They know their business." Construction Expenditures Construction expenditures of$579 million are planned during the two years 1987 and 1988, even though no new generation facilities are under construc-tion, or contemplated.
About$227 million has been allocated for new construction and upgrading of the company's transmission and distribution system in the next two years.Another large portion-$204 million-is budgeted for replacing worn and obsolete equipment, life-extension projects, and programs to improve the performance of our fossil-fueled and hydroelectric generating units.Additionally,$95 million is budgeted for ongoing improvements and modifications at the Susquehanna nuclear plant during 1987 and 1988.Power Pool Reaches New Peak Because of moderate weather conditions, no new winter or summer peak power demands were recorded by PP&L in 1986.PP&L's annual peak demand occurs during the winter because of its customers'igh electric heat load.However, sultry July weather to the south of PP&L's service territory, and the resulting air conditioning load, pushed the peak demand on the Pennsylvania-New Jersey-Maryland Interconnection to a new high of 37.5 million kilowatts on July 7, up from 37 million in August 1985.Robert Wenner PresIdent Wenner Construction Corp.Wyomlsstng Hills, Pa.Holtwood Unit Gets Life-Extension Overhaul Studies conducted by PP&L have shown that it is more economical to upgrade and continue to operate the company's existing generating units rather than replace them with new, more costly units.After more than three decades of reliable service, the 73,000-kilowatt coal-burning unit at the company's Holtwood plant, located along the Susquehanna River in Lancaster County, was shut down in May for a major overhaul aimed at extending its useful life.During the six-month overhaul the 32-year-old unit, which burns a mixture of anthracite and petroleum coke, underwent$13 million of renovations, including major repairs to its boiler.This work is expected to extend the unit's life by 15 to 20 years.Brunner Island Unit is 8G Years OLd Unit 1 at PP&L's Brunner Island generating plant located along the west bank of the Susquehanna River, 15 miles below Harrisburg, marked 25 years of commercial operation on June 22, 1986.The 334,000-kilowatt bituminous-coal-burning unit was the first of a generation of large, more efficient, units built by PP&L during the 1960s and 1970s to meet increasing electrical demand during a period of rapid economic growth in the company's service territory.
Y EAR I N R EVI EW PPd'cL Had Lowest Complaint Rate A report prepared by the Pennsylvania Public Utility Commission in June 1986 showed PP&L had the lowest customer complaint rate of any electric utility in the state during 1985.According to the report, the number of consumer complaints against PP&L dropped 22 percent from 1984 to 1985, leading to the lowest informal complaint rate in the state.Additionally, PP&L's mediation cases-instances in which the PUC is called on by a customer to intervene-dropped by 51 percent, giving PP&L the second-best mediation rate in the state.Right-of-Way Agents Marketing and Economic Development Marketing PP&L's"product," reliable electric service, in ways that emphasize its value to the customer, will enable the company to make effective use of its generating capability.
Marketing is a natural outgrowth of the fundamental premise that abundant, reliable and relatively inexpensive electric energy will help spark renewed economic prosperity in Central Eastern Pennsylvania.
The objectives of the company's marketing efforts include:~Increasing kilowatt-hour sales to service-area customers to achieve the lowest practical cost per kilowatt-hour to customers for electric energy.~Enhancing economic prosperity of PP&L's service area by providing options and choices for customers to best meet their individual needs for electric service."I have a lot of ideas about how I'd like to see my land developed.
l always count on a thorough discussion with my PP&L right-of-way agent, though, to provide me with practical, opera-tional considerations.
He's a good a//y." The company's marketing strategy is designed to capitalize on the unique properties of electricity.
It is a precisely measurable, extremely versatile and controllable form of energy whose value far exceeds its cost.The value to the customer lies in the ability of electric energy to improve productivity in business or industry, to provide a more healthful and safe working environ-ment, to reduce overall energy costs, and to enhance living standards when compared to alternative forms of energy.To PP&L, marketing means enhancing the economic prosperity of its service territory-by attracting and holding job-producing businesses and industries.
Applications of electric energy that make the best use of PP&L coal and nuclear power plants-through around-the-clock operation-can be found in business and industry.The thrust of the company's marketing strategy is to seek out those applications and to demonstrate to existing and prospective customers how electric energy can improve their productivity and better their competitive posture.The company is working through partnerships with the state, regional economic development groups, and municipalities to achieve economic improvement.
Charles Kelter Real Estate Developer Danvllle, Pa.Job Goal Exceeded The 1986 corporate goal of helping PP&L's service territory achieve a net increase of 5,000 new jobs was again exceeded as 165 new or expanding firms provided a net increase of more than 6,500 jobs.PP&L's economic development activities helped produce more than 17,500 new jobs in Central Eastern Pennsylvania during the past 36 months.
Right-of-Way Agent Ernie Ramirez (tan Jacket), Bfoomsburg Service Center, with Danvllle property owner.'/l 0'~mi'./~a.,s~.C MQ*f.4 PP&L cannot just bring in its equipment and place its facilities wherever it would like.Whenever a job calls for crew access to private property, right-of-way representatives must negotiate for the right to enter or build on a customer's land.Whether it's a pole line or trench along a property line, or land on which to build new transmission facilities, right-of-way agents are called on to use their negotiating skills and diplomacy to reach a reasonable consensus between PP&L's and a property-owner's interests.
Distribution Handyman Russell Bennett (right), Harrisburg Division Distribution Department, and Lehlgh Division Construction Mechanics Robert Lawler (below, on platform), and Nell Schaffer (below, right), in Allentown.
~3 e., I~It's the workers in the trenches and the lineman in the bucket trucks that are probably the most visible of PPB L's employees.
The orange and gray trucks, and their crews, seem to be everywhere.
In PP8 L's 67-year history, though, there has not been much change in the assignment
-get electric service to the customer.Quality facilities must be built, or repaired, in a timely manner, with priority consideration given to doing it safely, and with the least inconvenience to the public.Nobody does it better than PP8 L employees.
YEAR IN REVIEW Distribution Crews 188tr'esults The company's economic development efforts in 1986 also boosted electric energy sales more than 164 million kilowatt-hours.
Marketing efforts with industrial and commercial customers added more than 104 million kilowatt;hours, and residential marketing programs added another 28 million kilowatt-hours.
Overall, 296 million kilowatt-hours of increased sales resulted from the company's economic development and marketing programs.This figure exceeded sales goals by 22 percent."Success in our business is based on high produc-tion.PP&L is equipped and ready to get the job done.I found I could count on quality and reliability from the Harrisburg crews.They gave their word, and they performed."~,'.fj!Steven Shenenberger General Superintendent E.B.Abel Construction Co.Mountvllle, Pa.Rates and Regulatory Matters Early in 1986, PP&L announced its objective of improving earnings performance without increasing retail base rates for the remainder of the decade.The company is meeting this objective largely through ongoing cost-containment measures, refinancing high-cost securities at lower cost, and through increased sales.Management Audit Results In April, the PUC released a report on the audit of PP&L's management and operations.
The audit was conducted by Ernst&Whinney, a Wash-ington, D.C., public accounting and management consulting firm.Management studies of all major Pennsylvania electric utilities are periodically arranged by the PUC.The audit, which began in mid-1984, examined most of the functions of the company and areas of special concern to the PUC-such as staffing and compensation.
The report did not provide an overall conclusion about PP&L's performance.
Instead, the report ranked key task areas-such as cor porate management, financial management and customer service-in one of five categories:
optimum, above average, average, below average and unsatisfactory.
Thirty of the 34 rankings were average or above, with none in the unsatis-factory category.Along with the rankings, the auditors also suggested improvements, most of which the company agreed to implement or already had under way.Rate Case Appeal Denied In October, Pennsylvania's Commonwealth Court, by a 6-to-1 vote, denied an appeal PP&L filed in 1985 after the PUC ruled that the company was entitled to only about$121 million of its 1984 request for$330 million in higher rates.The company had sought the rate increase mainly to reflect the operating costs of Susquehanna Unit 2.The PUC cut the request after ruling that Unit 2 gives the company too much generating capacity at this time.In mid-November the company announced that it would not ask the Pennsylvania Supreme Court to review the decision of the lower court.Rates Decreased by$88 Million On Jan.1, 1987, the company decreased rates by$32 million to reflect a reduction in federal income taxes for 1987, and to adjust for other changes in PP&L's cost of serving customers.
The decrease incorporated the effect of lower federal tax rates beginning in January, as well as a decrease in the state tax surcharge and an increase in YEAR IN REVIEW the company's energy cost rate-the latter two of which would normally have become effective in April.Rather than lowering rates in January, then adjusting them again in April, the company asked the PUC to permit all of the changes to become effective at the beginning of 1987-with the net effect of the adjustments being an average 1.8 percent decrease in rates.The company believes the one-time adjustment contributes to a more stable economic atmosphere in Central Eastern Pennsylvania and reinforces PP&L's industrial development and marketing efforts.Customer Contact Representatives Susquehanna Nuclear Plant A number of significant events were recorded for the company's Susquehanna nuclear plant near Berwick, Pa.The twin 1,050,000-kilowatt boiling water reactors generated more than 11 billion kilowatt-hours of electricity during 1986.Both units at the plant ran extremely well.From early 1985, when it went into commercial operation, through the end of 1986, Unit 2 led all boiling water reactors in the nation in total electricity produced.In second place on that list was Unit 1.Second RefueLing Outage for Unit 1 Unit 1 was shut down Feb.15, 1986, to begin its second refueling outage since it began commercial operation in June 1983.During the shutdown, 296 of the reactor's 764 nuclear fuel assemblies were replaced with new ones.Plant crews also performed more than 300 required inspection tests that can be performed only while the unit is not generating electricity.
In all, more than 2,000 individual tasks, including maintenance and modifications, were completed.
The unit returned to service April 23-more than two weeks earlier than originally scheduled."I'd never had occasion to see theinside of a water heater, but PP8 L's repre-sentative pointed out how we could lower energy costs by setting our hot water temperature back a few degrees.It's attention to detail that sets PPS L apart." First RefueLing For Unit 8 Ending one of the most successful initial operating cycles in the history of the nation's nuclear power program, Unit 2 at Susquehanna was shut down Aug.9 to begin its first refueling.
More than 300 of its 764 fuel bundles were replaced, and more than 2,800 tests, maintenance and modification tasks were performed during the shutdown.The unit was returned to service on Oct.29, two days under the time allotted.Emergency DriLL SuccessfuL PP&L employees again successfully demonstrated to the Nuclear Regulatory Commission that they are capable of protecting the public in the event of an accident at the Susquehanna plant.NRC observers made that determination after a day-long drill held in April 1986 to test the emergency preparedness skills of PP&L personnel.
Full-scale, NRC-observed drills are held annually at Susquehanna.
In 1986 there was only limited participation by the Pennsylvania Emergency Management Agency and Luzerne County and Columbia County emergency organizations.
State agencies, municipalities and school districts-which are required by law to participate every two years-will join the 1987 drill.During the drill, PP&L personnel, and 30 representatives of the NRC responded to a specially prepared scenario for which details were not disclosed Margaret Furey Residential Customer Clarks Green, Pa.12 Customer Contact Representative Frank Smith (left), Northern Division Service Center, Scranton, and Serviceman Jack Aelchert (below), Central Division Service Center, Hazfeton.Servicemen There are no typical days for PP&L servicemen.
One day they may work on overdue bill collec-tion, another they may be chang-ing meters or locating under-ground electric cable for excavators.
Servicemen have many opportunities to promote good customer relations-to many customers they are PP8 L.~I)i'hen a customer has a question or problem that can't be resolved over the phone, customer contact representatives call in person to try to provide satisfaction.
A call may be as simple as showing a customer how setting the thermostat back on a water heater could lower energy costs, or as complicated as resolving large bill complaints, correcting back billing problems or coordinating facility relocations or service interruptions.
Customer contacts are multifaceted
-but representa-tives stay with a case until the customer is satisfied or a problem is cared for.
Meter Reader Paul Condefer (right), Northern Division Service Center, Scranton, and CARES Representative Tushanna Hamilton (below), Susquehanna Division Service Center, Montoursvllle.
CARES Representatives PP&L's Customer Assistance and Referral Evaluation Service (CARES)began as a pilot venture in 1980 and was implemented systemwide in 1982.CARES repre-sentatives provide guidance and assistance to customers who, because of legitimate hardships, can't pay the full amount of their electric service bills.r',~d ra a P I]Because of their consistent once-a-month appearance in any neighborhood, PP&L meter readers have many opportunities to promote good customer relations.
Although their primary objective is to read meters, they are also goodwill ambassadors and often provide current information about company policies or events that have an impact on the public.Because they must routinely cover a million meters over 10,000 square miles every month, PP&L meter readers must be resourceful, finding ways to overcome obstacles-including unfriendly dogs and unfriendly weather-in carrying out their assignments.
YEAR IN REVIEW to participants until the simulated incidents occurred.Drill activities took place at the plant, at PP&L's corporate offices in Allentown, and at a Media Operations Center at the Berwick YMCA.Meter Readers"I'e been impressed by the friendliness of PP8 L's meter readers.One em-ployee took the time to explain how his hand-held, computerized recorder worked.He told me how using the device improved productivity and helped keep down service costs.l liked that." Training Center Is First Training Academy Member The Training Center at the Susquehanna plant in July 1986 became the initial member of the National Academy for Nuclear Training.PP&L's pro-gram at Susquehanna was the first in the nation to be fully accredited in what will eventually be a network of campuses at all the nation's nuclear utilities.
The National Academy was established by the Institute of Nuclear Power Operations to focus and unify training efforts at U.S.nuclear power plants.INPO is an association formed in 1979 by utilities owning nuclear facilities to promote improvements in nuclear plant safety and reliability.
To become a member of the academy, a utility must have its training programs accredited by an INPO-appointed independent panel.The NRC has formally endorsed the academy concept.Employees Join National Safety Elite The 725 Nuclear Department employees at the Susquehanna plant were recognized in Apri11986 for being among the strongest safety achievers in the country when they accumulated 4 million consecutive employee-hours without a lost-time accident.The achievement breaks a company record and creates a new PP&L safety standard for power plants.Never before had a PP&L plant gone that long without a lost-time accident.The National Safety Council lists the Susquehanna record among the best of any American power plant, including nuclear, fossil-fueled or hydroelectric.
At the beginning of 1987, plant employees reached the 5 million work-hour mark without a lost-time accident.Debra DICindlo Residential Customer Dunmore, Pa.Water Supply Agreement Reached A water supply agreement finalized in July 1986 between the Susquehanna River Basin Commission and the U.S.Army Corps of Engineers will relieve the company from building an expensive reservoir to make up for cooling water losses at the Susquehanna plant during periods of low river flow.Under SRBC regulations, electric generating stations that use cooling towers which evaporate water could be required to shut down in periods of low river flow unless they have a supply of replacement water.Under the agreement, PP&L will pay a portion of the cost of raising the level of Cowanesque Lake in Tioga County by 85 feet.The modification will allow sufficient water storage to replace-during low-river-flow conditions
-water from the Susquehanna River evaporated by the plant's cooling system.Susquehanna Reports Are Highly Favorable Two independent reports on Susquehanna in 1986 reflected favorably on the management and operation of the nuclear plant.The company received near-perfect grades in the NRC's Systematic Assessment of Licensee Performance.
In that report, Susquehanna received the highest ranking possible in nine of 10 categories examined and the second-highest ranking in the remaining category.The grades give Susquehanna a higher current average SALP rating than any other nuclear plant in the nation.
YEAR IN REVIEW In another report, citing management effectiveness and strong professional development programs, INPO concluded that a high level of professionalism is evident at Susquehanna.
The report also noted the impressive condition and cleanliness of the plant, and cited good practices at the facility.It also offered suggestions in those areas where operations could be enhanced.Troublemen Management Changes John M.Chappelear, director-Pension Funds, was appointed vice president-Investments and Pensions on June 1, 1986.Chappelear joined PP&L in 1978 as manager-Pension Fund Investments.
He was named manager-F<inancial Department Administration in 1981, and that same year became director-Pension Funds.Charles F<.Russoli, senior vice president-F<inancial, was named executive vice president-F<inancial effective Nov.1, 1986.Russoli became executive vice president after more than three decades with PP&L.He joined the company in 1955 as a graduate trainee.After serving two years in the U.S.Army, he returned to PP&L and held various data processing positions until his promotion to financial analyst in 1965.He was named manager-Budgets in 1969, manager-Financial Planning and Reporting in 1971, vice president-Finance in 1979, and vice president and treasurer in 1981.He became senior vice president-Financial and chief financial officer in 1984.William R.White, vice president-Power Production retired on Jan.1, 1987, after nearly 37 years of company service.White began his electric utility career in 1950 as a results engineer at the company's former Stanton plant.He advanced through several positions there before being named assistant superintendent of the plant in 1963.He was named supervisor of operations at the company's Brunner Island plant in 1969 and plant superintendent in 1970.He was named manager-Power Production in 1973 and vice president in 1984.Succeeding White, Thomas M.Crimmins Jr.became vice president-Power Production on Jan.1, 1987.Crimmins joined PP&L in 1981 as manager-Nuclear Plant L<ngineering after 10 years with the General Public Utilities organization in New Jersey.His last position with GPU was manager-Engineering Projects with GPU Nuclear Co.He had previously served five years in the Navy nuclear submarine program.Crimmins served as superintendent of the Susquehanna nuclear plant from July 1, 1985, until his new appointment."I called PP&L to report a power outage.The person I talked to askedifl'd heard a loud crack-the sound of a fuse blowing-which I did.Fifteen minutes later, a PP8 L employee appeared in my yard and replaced the fuse.AII very efficient!" Board of Directors The Very Rev.Daniel G.Gambet, OSFS, president of Allentown College of St.Francis de Sales, was elected a director, effective Nov.1, 1986.Father Gambet joined Allentown College as academic dean in 1964 after serving in various teaching and administrative positions at the high school and college levels for seven years.He became vice president and academic dean at Allentown College in 1970, and served as provincial of the Eastern Province of the Oblates of St.Francis de Sales from 1972-1978 in addition to his duties as vice president of the college.He was named Allentown College president in 1978.Charles E.Russoli was elected a director of the company, effective Nov.1, 1986, in an action concurrent with his appointment as executive vice president.
Claude Butler Restdentlat Customer Emmaus, Pa.
Troubteman John Filo (left), and Service Dispatcher Randy Schelrer (below), Lehlgh Division Service Center, Allentown.
Service Dispatchers During non-business hours, all calls to PP&L customer service numbers are answered by service dispatchers.
They are the ones who customers reach when there is trouble after 5 p.m.Dispatchers alert foremen, crews and service-men when storms cause service interruptions.
Blown transformer fuses are probably the most common causes of iso-lated customer service interruptions.
It could be a squirrel or birds, a branch or a lightning stroke, that shorts out the line and blows the fuse, protecting the customer's service entrance.Troublemen are on duty around-the-clock to respond to customer problems.It's usually the troubleman, or the crew sent to restore service after a storm, that pro-vides the best example that PP8 L is always on the job.
FINANCIAL REVIEW Review of the Company's Financial Condition and Results of Operations This review provides a discussion of the Contpany'8 financial condition and results of operations.
Additional information on these matters is set forth in the financial statements, schedules and notes on pages 8S-S7 and the selected financial and operating data on pages 88 and 89.84.00 EARNINGS AND DIVIDENDS PER SHARE Bat lara Per Sharc Results of Operations Earnings per share of common stock were$3.10 in 1986,$2.68 in 1985 and$3.12 in 1984.The 1985 dip in earnings principally was the result of a rate decision by the Pennsylvania Public Utility Commission (PUC)in April 1985.The Company had asked the PUC for a rate increase of$330 million to support the additional costs associated with operating Susquehanna Unit 2, which was placed in service early in 1985, and other increased costs of doing business.However, the PUC allowed only$121 million of the requested increase.The Company appealed the decision to the Commonwealth Court of Pennsyl-vania (Court).In October 1986, the Court denied the Company's appeal and affirmed the PUC's April 1985 decision.Neither the Company, nor any of the other parties to the appeal sought a review by the Pennsylvania Supreme Court.To improve financial health, the Company implemented the following programs which resulted in earnings returning to about the level achieved in 1984:~Increase initiatives to contain operating costs in areas where the quality of service to customers would not be affected~Refinance high-cost securities at a lower cost~Enhance marketing efforts to increase sales The Company is seeking to maintain base rate stability by avoiding retail base rate increases for the remainder of the 1980s.Cost containment and an aggressive marketing program are key elements in achieving this objective and maintaining financial strength.Energy Sales and Operating Revenues Total electric energy sales were 2.3 billion kwh, or 8.2%, higher in 1986 than in 1985, reflecting increased sales to customers and increased contractual sales to other utilities.
Contractual sales to other utilities represent the energy sold to Atlantic City Electric Company from the Susquehanna units and the energy sold to Jersey Central Power&Light Company (JCP&L)from all of the Com-pany's generating units.These sales were 1.3 billion kwh, or 31.9%, higher in 1986 than in 1985, reflecting primarily a full year's sales to JCP&L.Sales to JCP&L began on April 17, 1985.Electric energy sales (excluding contractual sales to other utilities) were 1.0 billion kwh, or 4.2%, higher in 1986 than in 1985.Sales to residential cus-tomers increased 417 million kwh, or 5.0%, reflecting increased new home building with high acceptance of electric heat.Continued economic growth was experienced in the commercial sector with sales to this class of customers increasing 431 million kwh, or 6.4%.Sales to industrial customers increased 79 million kwh, or 1.0%.A decline in sales to the steel industry of 121 million kwh, or 11.7%, was more than offset by an increase in sales to other industrial customers of 200 million kwh, or 2.9%.Tariffs subject to PUC jurisdiction accounted for approximately 84%of the Company's revenues in 1986.The remaining 16%of revenues are regulated by the Federal Energy Regulatory Commission (F ERG).The FERC also regu-lates interchange power sales which are classified as a credit to operating expenses.Billings to customers under PUC jurisdiction include base rate charges along with supplemental charges for energy costs and state taxes over the levels 3.00 2.00 1.00 82 83 84 85 86~Earnings~Dividends declared COMMON STOCK BOOK VALUE VS.MARKET PRICE (Year End)840 Dollars Pcr Sharc 30 20 10 82 83 84 85 86~Book value per share~Market price pcr share included in base rates.Starting on January 1, 1987, a new Income Tax Adjust-ment(ITA)passes through to these customers the effect of lower income taxes resulting from the Tax Reform Act of 1986 (Tax Act).Billings to FERC customers (excluding contractual sales to other utilities) include base rate charges and a supplemental charge for fuel costs over the level included in base rates.Details of the changes from the prior year in operating revenues are shown below.Hase rate increases for customers under the jurisdiction of the PUC went into effect August 1983 and April 1985.In December 1985, the Company sold its steam heat plant and associated distribution system in the City of Harrisburg.
In prior years, revenues from steam heat operations were less than 1%of the Company's annual total operating revenues.SOURCES OF ENERGY 50 Billions of Ku h 40 30 Changes in Operating Revenues 1986 1985 1984 (lifi Llions of Dollars)20 Electric Base rate increases.
Recovery of fuel and energy costs..Change in customer usage.........
Contractual sales to other utilities..Other (principally tax surcharge)
..Total electric Steam heat Total.$80.4 49.6 38.3 59.5 (10.1)217.7 (5.3)$212.4$138.2 50.3 13.1 200.8 12.1 414.5 (0.8)$413.7$257.5 (17.0)31.1 13.3 28.1 313.0 1.4$314.4 10 82 83 84 85 8G~Hydro and purchased power~Oil.fired generation
~Nuclear generation
~Coal fired generation Net Cost of Energy In 1986, the output from the Company's generating units was 41.5 billion kwh, a decrease of 1.2 billion kwh from 1985.The decline reflects generation lost during refueling outages for both of the Susquehanna nuclear units.The Company's share of the nuclear units'utput was 10.2 billion kwh in 1986.Coal-fired units generated about 25.2 billion kwh and the balance of total generation came from oil-fired and hydro units.Fuel expense in 1986 was 15.1%lower than in 1985 due principally to the lower cost of coal and oil.The average cost of fuel per kwh generated by coal-fired stations was 6.2%lower in 1986 than in 1985, while the fuel cost per kwh of oil-fired generation declined 41.0%.The amount received for interchange power sales in 1986 was$298.2 million less than in 1985 due to the lower quantity of energy sold and a reduction in the selling price.Interchange sales in 1986 were 11.3 billion kwh, a decrease of 5.0 billion kwh, or 30.5%, from 1985.The decrease was primarily attributable to the reduced demand, by interconnected utilities, for energy from the Company.The average price received for interchange sales was 2.57 cents per kwh in 1986 and 3.62 cents per kwh in 1985.The decline primarily reflects the impact of lower-cost oil on the pricing of interchange sales.W'ages anfj Benefits, Other Operating Costs and Depreciation Wages and employee benefits and other operating costs increased over the prior year in both 1986 and 1985 reflecting in part higher prices and the costs associated with operating Susquehanna Unit 2.Higher depreciation in 1986 reflects the normal annual increase associated with the use of a modified straight-line method of depreciating the Susquehanna nuclear plant along with the depreciation of new facilities.
DISPOSITION OF ENERGY 60 Billions of Kuh 40 30 20 10 82 83 84 86 8G~Company use, line losses and other~Interchange power sales~Contractual sales to other utilities~System sales to customers Income Taxes Total income tax expense was$113 million higher in 1986 than in 1985.Taxes for 1985 were reduced by the utilization of tax loss carryforwards of approxi-mately$100 million for both federal and state income tax purposes.Taxable income in 1986 included a full year's effect of higher rates permitted by the PUC in April 1985 and a full year's effect of contractual sales to JCPEr L.The Tax Act repeals the investment tax credit and reduces the amount of unused investment tax credits that can be used to offset future federal income tax liabilities.
After giving effect to the Tax Act and generation of tax credits in 1987 on transitional property, the Company estimates that approximately
$146 million of unused i'nvestment and payroll-based credits will be available to reduce federal income tax liabilities in 1987 and future years.For additional information concerning income taxes, see the Schedule of Taxes on page 27 and Notes 5 and 15 to Financial Statements.
CayitaL Expenditure Requirements The schedule below shows actual construction and nuclear fuel expenditures for the years 1984-1986 and current projections for the years 1987-1989.
Construction expenditures during the three years 1984-1986 totaled$898 million and are expected to be about$871 million during the three years 1987-1989.
81200 1,000 800 600 400 200 CAPITAL REQUIREMENTS Miltie<<<<of Dollars Construction and Nuclear Fuel Expenditures
-Actual--Proj ected-1984 1985 1986 1987 1988 1989 (Millions of Dollars)84 85 86 87 88 89-Art<<al--Proj<rtrd-C3 Other~Security retirements
~Construction and nuclear fuel Construction expenditures (a)Generating facilities (b).....Transmission and distribution facilities......
Environmental
.Other Nuclear fuel (c).Total 84 93 97 5 6 9 11 17 20 422 200 276 103 74 65$525$274$341 104 123 131 23 24 12 32 15 18 283 296 292 35 34 63$318$330$355$322$84$150$124$134$131 SOURCES OF CAPITAL 81200 tt'l'ft)<pit<<rs 1,000 (a)Construction plans are revised from time to time to reflect changes in conditions.
Actual construction costs may vary from those projected because of changes in plans, cost fluctuations, environmental regulations and other factors.Construction expenditures include AFUDC which is expected to be less than$25 million in each of the years 1987-1989.(b)Includes amounts spent in 1984 and 1985 to complete the Susquehanna units and amounts spent for modifications and improvements to all generating facilities.(c)Includes both owned and leased nuclear fuel.800 600 400 ALLozoance for Funds Used During Construction (AFUDC)The Susquehanna units accounted for about)166 million of the total$169 mil-lion of AFUDC recorded during 1984.The total amount of AFUDC recorded in 1985 was negative due to an adjustment of the income tax component of AFUDC attributable to the utilization of tax loss carryforwards.
With no new generating facilities under construction, the amount of AFUDC for 1986 totaled about$11 million and is not expected to be material in the foreseeable future.See Note 6 to Financial Statements for additional information concerning AFUDC.200 84 85 86 87 88 89-Art<<<<t--f'roj rrtr<t-~Capital lease obligations
~Outside financing (sales of debt and equity securities)
Internal sources (principally from operations plus AFVDC less dividends) 20 Financing During the three years 1984-1986, the Company sold about$1.2 billion of securities and also incurred$241 million of obligations under capital leases (primarily nuclear fuel).The Company's 1986 financing program involved the sale of$600 million of securities undertaken primarily to take advantage of improved conditions in the capital markets.About$475 million of high cost securities were redeemed with lower cost securities thereby reducing the Company's overall cost of financing.
Details of the amount of securities sold and redeemed and other information on sources and uses of funds during 1984-1986 are set forth in the Statement of Changes in Financial Position on page 26.The Company presently estimates that outside financing during the three years 1987-1989 will be about$600 million, or about one-half of the amount required during the prior three years.F<unds from securities sales and from internal sources will be used to finance construction expenditures, repay$97 million of maturing long-term debt obligations, meet$133 million of preferred and preference stock sinking fund requirements and for the early retirement of$684 million of certain high-cost issues of preference stock and long-term debt.The Company intends to issue about$170 million of securities in 1987.The exact amount, nature and timing of sales of securities in 1987 and subsequent years will be determined in the light of market conditions and other factors.Funds generated from internal sources are expected to provide about 61%of total funds required during the three years 1987-1989 compared with 44'Fo during the three years 1984-1986.
TIMES INTEREST CHARGES EARNED (12 Months Ended Each Quarter)3 TimrsEar<<rd(Pre Toz)82 83 84 85 88 Financial Condition The Company's overall financial condition continues to improve.Earnings per share of common stock, at$3.10, have returned to about the level experi-enced in 1984.Certain key financial ratios, which are indicators of liquidity, also showed gains.The ratio of the Company's pre-tax income to interest charges increased to 2.8 times for the year 1986.This is the highest level for this ratio since 1979.The cash flow coverage of the Company's common stock dividends was 2.8 times for the year 1986.This is the highest level for this ratio since 1977.Certain provisions of the Tax Act and application of the Company's ITA rider are expected to have an adverse effect on the Company's pre-tax interest coverage and internal cash generation.
The lower overall tax expense antici-pated due to the decline in the federal income tax rate will be passed through to customers in the ITA.The repeal of the investment tax credit, capitalization of certain costs previously deductible when incurred and other provisions of the Tax Act will adversely affect cash flow.Future financial condition and earnings performance will depend on many factors including unanticipated increases in future capital requirements, the level of economic activity in the Company's service area, future action by rate-regulatory agencies, possible adverse effects of proposed accounting changes by the Financial Accounting Standards Board (FASB)and possible costs incurred in connection with the Company's program of phasing out affiliated coal-mining operations.
CASH FLOW COVERAGE OF COMMON STOCK DIVIDENDS (1211onths Ended Each Quarter)3 Times Diridrn<i<<Corrred Impacts of Inflation In prior years, the Company included certain supplementary information on changing prices in an unaudited note to the Financial Statements.
The F<ASB recently decided that presentation of the information was optional, and the Company elected not to include it in this year's annual report because experi-ence has shown that the information generally was not used.The principal effects of price changes on the Company's operations are discussed in other sections of this review.82 83 84 85 86 Management's Report on the Financial Statements The management of Pennsylvania Power&, Light Company is responsible for the preparation, integrity and objectivity of the financial statements and all other sections of this annual report.The financial statements have been prepared in conformity with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission.
In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances.
The Company maintains a system of internal accounting controls designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that transactions and events are executed in accordance with management's authorization and are recorded properly to permit preparation of financial statements in accordance with generally accepted accounting principles.
The concept of reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal accounting controls.Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties and the utilization of written policies and procedures.
In addition, the Company maintains an internal auditing program to evaluate the Company's internal accounting controls, policies and procedures as to adequacy, application and compliance.
Deloitte Haskins&Sells, independent certified public accountants, have been engaged to examine the Company's financial statements and to render an opinion as to whether such financial statements, considered in their entirety, present fairly the Company's financial position, operating results and changes in financial position, in conformity with generally accepted accounting principles.
Their examination is conducted in accordance with generally accepted auditing standards and includes such procedures believed by them to be sufficient to provide reasonable assurance that the financial statements are not materially misleading and do not contain material errors.The Board of Directors, acting through its Audit Committee, oversees management's responsibilities in the preparation of the financial statements.
In performing this function, the Audit Committee, which is composed of directors who are not employees of the Company, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each.Deloitte Haskins&Sells and the internal auditors have free access to the Audit Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters.Auditors'pinion Deloitte Haskins+Sells Certified Public Accountants One World Trade Center New York, New York 10048 To the Shareowners and Board of Directors of Pennsylvania Power&Light Company: We have examined the balance sheets of Pennsylvania Power&Light Company as of December 31, 1986 and 1985 and the related statements of income, earnings reinvested, and changes in financial position for each of the three years in the period ended December 31, 1986.Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, such financial statements present fairly the financial position of the Company at December 31, 1986 and 1985 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1986, in conformity with generally accepted accounting principles applied on a consistent basis.February 4, 1987 22 Statement of Income 1986 1985 (Thousands of Dollars)1984 Operating Revenues (Note 2)$2,188,925$1,976,502$1,562,782 Operating Expenses Net cost of energy Fuel.Power purchases.........
Interchange power sales.Wages and employee benefits Other operating costs.Depreciation.
Income taxes (Note 5)Taxes, other than income Deferred Susquehanna energy savings net of operating expenses (Note 3).Operating Income 641,740 90,879~289,422)442,697 280,986 277,286 155,073 282,712 160,896 1,599,600 589,825 756,295 164,963~587,613 333,645 259,670 272,147 141,912 243,160 170,405 29,075 1,450,014 526,488 720,670 171,953~(647,186 245,437 232,632 219,002 118,763 185,784 154,206 1,155,824 406,958 Other Income and (Deductions)
Allowance for equity funds used during construction (Note 6).Deferred Susquehanna capital costs (Note 3)..Income tax credits (Note 5).Other-net.................................
Income Before Interest Charges (1,443)6,959~2,709)2,807 592,182 (51,490)31,742 80,764~7,670 53,346 579,834 64,743 (718)62,623~4,830)121,818 528,776 Interest Charges Long-term debt Short-term debt and other Allowance for borrowed funds used during construction (Note 6)290,788 14,036 12,795 284,538 26,872 280,328 33,740 (22,189)(104,195)Net Income Dividends on Preferred and Preference Stock...Earnings Applicable to Common Stock......209,873 318,908 92,145 292,024 289,221 290,613 91,286 300,108 69,057 281,051$199,327$226,758 Earnings Per Share of Common Stock (a)..$3.10$2 68$3 12 Average Number of Shares Outstanding (thousands)
..74,518 74,513 72,767 Dividends Declared Per Share of Common Stock...(a)Based on average number of shares outstanding.
$2.58$2.56$2.48 See accompanying Schedules and Notes to Financial Statements.
Balance Sheet at December 31 Assets 1986 1985 (Thousands of Dollars)Utility Plant Plant in service-at original cost Less accumulated depreciation Construction work in progress-at cost.Nuclear fuel owned and leased-net of amortization (Note 8)..Other leased property-net of amortization (Note 8)..........
$7,072,142 1,256,304 5,815,838 224,426 378,432 78,433 6,497,129$6,916,733 1,140,046 5,776,687 161,684 372,446 79,318 6,390,135 Investments Associated companies-at equity Receivable from litigation settlement
.Nonutility property and other-at cost or less 22,538 9,700 17,065 49,303 18,099 19,200 13,023 50,322 Current Assets Cash Special deposit for purchase of nuclear fuel.Accounts receivable (less reserve: 1986,$7,262;1985,$6,223)Customers.Interchange power sales.Other Unbilled revenues Fuel (coal and oil)-at average cost Materials and supplies-at average cost.Common stock held for dividend reinvestment plan-at cost (Note 7)Other.4,049 8,550 165,844 29,501 9,407 90,484 139,674 28,647 10,816 19,189 506,161 4,615 152,483 46,086 7,231 68,840 154,572 23,609 11,878 25,121 494,435 Deferred, Debits Utility plant carrying charges (Note 14).Unamortized debt expense and reacquired debt costs..Other.28,605 23,346 34,528 86,479 4,585 26,162 30,747$7,139,072$6,965,639 24 See accompanying Schedules and Notes to Financial Statements.
Li aN Litotes 1986 1985 (Thousands of Dollars)Capitalization Common equity Common stock Capital stock expense.Earnings reinvested
$1,807,267 (14,155)622,587 1,915,649$1,807,267 (16,669)615,102 1,905,700 Preferred and preference stock With sinking fund requirements.
Without sinking fund requirements.
Long-term debt 475,289 281,875 2,732,223 5,854,486 691,010 231,375 2,507,213 5,335,298 Current Liabilities Commercial paper.........Long-term debt due within one year Capital lease obligations due within one year (Note 8)..Accounts payable Taxes accrued.Interest accrued Dividends payable Deferred income taxes Energy revenues to be refunded Other 112,000 46,568 74,360 101,205 65,606 78,425 61,068 80,925 71,044 686,196 95,500 97,723 70,420 114,450 57,506 69,714 70,104 33,437 36,672 51,416 696,942 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits Deferred income taxes Capital lease obligations (Note 8)Other 190,797 570,986 829,488 57,169 1,148,890 120,482 432,806 826,110 54,001 933,899 Commitments and Contingent Liabilities (Note 16)..$7,189,072$6,965,639 See accompanying Schedules and Notes to Financial Statements.
1985 1984 (Thousands of Dollars)Source of Funds From operations Net income Charges (credits)to income not involving working capital Depreciation
.Amortization of property under capital leases...Noncurrent deferred income taxes and investment tax credits-net Allowance for funds used during construction...
Other.$318,903$290,613 300,108 118,763 38,649 141,912 77,850 155,073 71,380 133,103 29,301~5,406 207,575 (11,352)~922)125,038 (168,938)3,220 Statement of Changes in Financial Position 1986 Outside financing Common stock.Preferred and preference stock First mortgage bonds Short-term debt-net increase (decrease).....
Capital lease obligations 721,862 100,000 500,000 16,500 616,500 81,595$1,419,957 667,373 180,000~9,300 170,700 79,533$917,606 435,635 84,203 50,000 403,250~35,200 452,253 79,894$967,782 Application of Funds Construction expenditures
.Additions to nuclear fuel-owned and leased...Allowance for funds used during construction
..Securities retired Preferred and preference stock First mortgage bonds Secured term notes Reduction in capital lease obligations
...........
Dividends on preferred, preference and common stock Premium on redemption of preference stock.....
Premium on retirement of long-term debt.......
Working capital-increase (excluding debt and capital lease obligations)(a).Other-net.$275,761 65,281~11,352)329,690 315,771 323,470 639,241 74,327 261,298 27,283 17,540 41,757 28,821$1,419,957$199,852 74,345 29,301 303,498 47,017 76,534 100,000 223,551 84,530 282,036 14,344 9,647$917,606$421,697 103,518 (168,938)356,277 26,803 80,154 100,000 206,957 47,695 273,236 66,029 17,588$967,782 (a)Changes in components of working capital (excluding debt and capital lease obligations)
Cash~Accounts receivable.
Unbilled and refundable revenues, net of deferred taxes.Fuel (coal and oil).Accounts payable and accrued taxes..................
Other-net.Net increase.$, (566)(1,048)60,828 (14,898)5,145 (7,704)$41,757$(1,839)48,234 70,594 (43,289)(20,053)(39,303)$14,344$(299)1,917 (7,438)70,771 (32,277)33,355$66,029 26 See accompanying Schedules and Notes to Financial Statements.
Schedule of Taxes 1986 1985 (Thousands of Dollars)1984 Income Tax Expense (Note 5)Included in operating expenses Provision-Federal.State Deferred-Federal.State Investment tax credit, net-Federal..Included in other income and deductions Provision (credit)-F(ederal State.Total income tax expense-F(ederal State Detail of deferred taxes in operating expenses Tax depreciation Reacquired debt costs.Deferred Susquehanna energy savings net of ope'rating expenses State utility realty tax Other$37,718 27,728 65,441 130,576 5,092 185,668 81,608 282,712 (5,818)~1,646)(6,959)244,579 31,174$275,758$129,888 9,557 (3,088)~694)$135,668$78,648 28,458 102,106 107,954~2,898 105,646 35,408 243,160 (67,005)(13,759)(80,764)155,005 7,391$162,396$130,287 (15,811)(13,291)4,511$105,646$51,790 11,243 63,033 128,844 2,815 126,659 (3,908)185,784 (51,370)~(11,258 (62,628)120,356 2,805$128,161$120,232 14,888~(8,461$126,659 Reconciliation of Income Tax Expense Indicated federal income tax on pre-tax income at statutory tax rate (46%).Increase (decrease) due to: AFUDC (Note 6)State income taxes.Tax and pension cost Deferred Susquehanna capital costs......
Depreciation differences not normalized
..Utilization of loss carryforward..........
Other.Total income tax expense.Effective income tax rate$264,896 (5,222)19,078 (5,762)8,987~6,224)10,857$275,758 47.9%$208,384 13,478 (1,566)(5,245)(14,601)12,290 (52,604)2,260 (45,988)$162,396 35.8%$203,350 (77,656)1,960 (5,719)881 1,439 544 (80,189)$123,161 27.9%Taxes, Other Than Income State gross receipts.State capital stock.State utility realty.Social security and other...$79,209 22,789 41,467 17,481$160,896$73,549 23,557 56,407 16,892$170,405$66,711 23,044 48,316 16,135$154,206 See accompanying
¹tes to Financial Statements.
SChedule Of Capital StOCk at December 31 Outstanding 1986 1985 (T/iousands of Dollars)Shares Outstanding Shares 1986 Authorized Preferred Stock-$100 par, cumulative (a)41/Series$58,019 415,446$468,465 53,019 530,189 629,936 451,046 4,154,456 10,000,000
$504,065 Preference Stock-no par, cumulative (a)...Common Stock-no par (a).Details of Preferred and Preference Stock (b)$288,149$418,320 2,381,492 5,000,000$1,807,267$1,307,267 74,512,797 85,000,000 Outstanding 1986 1985 (Thousands of Dollars)nts$100,000 27,200 24,000 40,000 6,000 80,000 54,000 55,890$28,800 36,000 42,500 8,000 40,000 57,000 58,890 26,500 15,000 26,000 15,000 34,000 15,000 51,000 37,849 50,000 14,971 50,000 50,000 50,000 40,800 82,849 50,000$475,239$691,010 With Sinking Fund Requireme Series Preferred 7.00%(d)................
7.40%7.75%8.00%8.00%, Second...........
8.25%8.75%(d)................
9.24%(d)............,...
10.75o/o 11.00$, Adjustable (e)(f)..11.00%11.25%14.00%Preference
$8.625 (f)................
$11.00 (d)...............
$11.60 (d)(g)..~.........
$13.00$13.00, Second..........
$13.68$15.00 1,000,000 272,000 240,000 400,000 60,000 800,000 540,000 558,900$107.00 103.55 100.87 112.00 101.78 101.84 110.00 103.00 150,000 125.00 408,000 323,492 500,000 None 104.95 114.00 Optional Redemption Shares Price Per Outstanding Share 1986 1986 200,000 16,000 120,000 25,000 20,000 100,000 30,000 30,000 80,000 1993-1997 1987-2008 1987-1988 1987-2002 1987-1989 1987-1989 1987-2004 1987-2005 1989-1998 102,000 25,000 25,000 1987-1990 1987-2000 1989-2008 Sinking Fund Provisions(c)
Shares to be Redeemed Redemption Annually Period Without Sinking Fund 4~/>%Preferred.....Series Preferred 3.35%4.40o/o 4.60%8.60%9.00%Preference
$8.00$8.40$8.70 Requirements 58,019 4,178 22,878 6,300 22 237 7,763 85,000 40,000 40,000 4,178 22,878 6,300 22,237 7,768 85,000 40,000 40,000 41,788 228,773 63,000 222,370 77,630 350,000 400,000 400,000 103.50 102.00 103.00 104.00 104.00 103.00 101.00 101.00$53,019 530,189$110.00$281,875$231,375 28 See accompanying Notes to Financial Statements.
Increases (Decreases) in Capital Stock (Thousands of Dollars)1986 Shares Amount 1985 Shares Amount 1984 Shares Amount (16,000)(1,600)(120,000)(12,000)(25,000)(2,500)Common Stock-issued under dividend reinvestment plan (h)..4,177,927$84,874 Series Preferred Stock 7.00%.1,000,000$100,000 7.40%............
(16,000)(1,600)(16,000$(1,600 7.50%.....................
(150,000 (15,000 7.75%..................
(120,000 (12,000 (120,000 (12,000 8.00%...................
(25,000 (2,500 (25,000 (2,500 8.00%, Second.................
(20,000 (2,000 (20,000 (2,000 8.25%....................
(100,000 (10,000 (100,000 (10,000 8.75%................
(30,000 (3,000 (30,000 (3,000 9.24%......................
(30,000 (3,000 (650 (65 (58,660)(5,866)10.75%...............
265,000 26,500 11.00/0...............
260,000 26,000 11.25%................
150,000 15,000 14.00%..................
340,000 34,000 Preference Stock$8.625....(102,000 (10,200$13.00...........
149,705 14,971 4,317 432 17,875 1,787$13.00, Second................
500,000 50,000$13.68............
500,000 50,000 500,000 50,000$15.00..............
500,000 (50,000 Decreases in Preferred and Preference Stocks represent: (i)the redemption of stock pursuant to sinking fund requirements, (ii)shares redeemed pursuant to optional redemption provisions, or (iii)shares reacquired through market purchases and subsequently cancelled (used to meet sinking fund requirements).(a)Each share of preferred, preference and common stock entitles the holder to one vote on any question presented to any shareowners'eeting.(b)The involuntary liquidation price of the preferred and preference stock is$100 per share, and the optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4~/%Preferred and the$8.625 Series Preference Stocks which are$100 per share (plus in each case any unpaid dividends).
Liquidation payments on preferred stock have priority to such payments on the preference stock.(c)The aggregate amountof sinking fund redemption requirements through 1991 are(thousands of dollars): 1987,$45,539;1988,$46,800;1989,$40,300;1990,$28,300;1991,$18,100.(d)On certain sinking fund redemption dates, additional shares may be redeemed up to the number of shares required to be redeemed annually.(e)Effective April 1, 1988, the dividend rate is subject to a one-time adjustment pursuant to a formula based on the then current prime rate.(f)In the event certain federal income tax benefits are lost to corporate holders of these stocks, the Company may be required to make indemnity payments sufficient to provide the holders with an agreed upon effective yield after federal income taxes.At December 31, 1986, the Company estimates that future indemnity payments would not exceed$4.8 million, most of which would be payable only after the holders sell or redeem the stock.(g)Ownership of the$11.60 Preference Stock is evidenced by Depositary Preference Shares, each representing
~/<share of Preference Stock.The Company intends to redeem all of the outstanding Stock on February 18, 1987 at the optional redemption price of$115.52 per share ($28.88 per depositary share)which includes$1.52 per share ($0.38 per depositary share)representing an amount equal to the accrued dividends from January 1, 1987.(h)Since 1985, shares for the dividend reinvestment plan have been acquired in the open market.See accompanying Notes to Financial Statements.
First Mortgage Bonds (a)15%.16/2%14s/4%16y2%16y2%16y%16y%12ys%16y2%16y2%12ye%16y2%16y2%14%(c).12y,%16y2%4/s%45/s%to 16ys%6s/4%to 9%.7y2%to 93/4%Sy2%to 15'/s%(c)9%to 13y4%First Mortgage Pollution Control Bonds (a)5/s%Series A...............................
7/s%to 8ys%Series C.lly4%to lly2%Series D 10~/8%Series E 105/8%Series F.93/>%Series G.$16,670 30,900 50,000 36,000 10,400 10,100 10,400 10,000 7,000 10,400 10,000 8,500 10,400 125,000 10,000 10,400 30,000 305,000 220,000 610,000 200,000 475,000$86,000 10,400 10,100 10,400 10,000 7,000 10,400 10,000 8,500 10,400 10,000 10,400 80,000 480,000 220,000 610,000 100,000 850,000 20,900 20,000 70,000 87,750 115,500 55,000 21,800 20,000 70,000 37,750 115,500 55,000 SChedule Of LOng-Term Debt at December 31 Outstanding 1986 1985 (Thousands of Dollars)Maturity (b)February 1, 1986 August 1, 1986 December 12, 1986 August 1, 1987 September 1, 1987 August 1, 1988 September 1, 1988 February 1, 1989 August 1, 1989 September 1, 1989 February 1, 1990 August 1, 1990 September 1, 1990 December 1, 1990 February 1, 1991 September 1, 1991 December 1, 1991 1992-1996 1997-2001 2002-2006 2007-2011 2012-2016 (d)(d)(d)March 1, 2014 September 1, 2014 July 1, 2015 Other Long-Term Debt Secured term notes (a)(e)Miscellaneous promissory notes Unamortized (discount) and premium-net..Less amount due within one year..2,702,750 100,000 668 2,808,418 (24,622)2,778,791 46,568 2,526,220 100,000 468 2,626,688 (21,752)2,604,986 97,728 March 31, 1991 1987-1995$2,782,228$2,507,213 (a)Substantially all utility plant is subject to the lien of the Company's first mortgage.Certain utility plant is also subject to the lien of a second mortgage issued as security for term notes.(b)Aggregate long-term debt maturities through 1991 are (thousands of dollars): 1987,$46,568;1988,$21,550;1989,$28,414;1990,$29,839;1991,$151,339.Maximum sinking fund requirements aggregate$33.7 million through 1991 and may be met with property additions or retirement of bonds.(c)In March 1986, the Company redeemed$125 million principal amount of First Mortgage Bonds, 14%Series due 1990 and$100 million principal amount of First Mortgage Bonds, 15~/8%Series due 2010.(d)Bonds mature annually as follows (thousands of dollars): (i)Series A on May 1, 1988-2002,$900;2003,$7,400 (ii)Series 0 on April I, 2000,$4,000;2006-2009,$2,000;2010,$8,000 (iii)Series D on November 1, 2002,$15,000;2012,$55,000.(e)Variable interest rate.30 See accompanying Notes to Financial Statements.
Statement of Earnings Reinvested Balance, January 1 Add Net Income Deduct Cash dividends declared Preferred stock-at required annual rates..Preference stock-at required annual rates.Common stock-per share: 1986,$2.58;1985,$2.56;1984,$2.48 Costs associated with the redemption of preferred and preference stock.1984 41,470 27,587 192,241 81,375 44,537 46,749 190,750 47,437 44,708 181,091 1986 1985 (Thousands of Dollars)$615,102$606,525$560,858 300,108 290,613 318,908 915,210 897,138 879,761 Balance, December 31 292,678$622,537 282,036$615,102 273,236$606,525 Notes to Financial Statements 1.Summary of Significant Accounting Policies Accounting Records Accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC)and adopted by the Pennsylvania Public Utility Commission (PUC).Affiliated Companies Investments in unconsolidated subsidiaries (all wholly owned)and in Safe Harbor Water Power Corporation (of which the Company owns one-third of the outstanding capital stock representing one-half of the voting securities) are recorded using the equity method of accounting.
Unconsolidated subsidiaries operate in the United States and are engaged in coal mining, holding coal reserves, oil pipeline operations and real estate investment.
All unconsolidated subsidiaries considered in the aggregate would not constitute a"significant subsidiary" as that term is defined by the Securities and Exchange Commission.
Utility Plant and Depreciation Additions to utility plant and replacement of units of property are capitalized at cost.The cost of units of property retired or replaced is removed from utility plant accounts and charged to accumulated depreciation.
Expenditures for maintenance and repairs of property and the cost of replacing items determined to be less than units of property are charged to operating expense.For financial statement purposes, depreciation is being provided over the estimated useful lives of property and is computed using a modified straight-line method for the Susquehanna nuclear plant and the straight-line method for all other property.These methods are also used for rate-making purposes.The modified straight-line method provides for an increasing amount of annual depreciation for the nuclear plant until the year 2000, at which time the plant's net undepreciated cost will be depreciated in equal annual amounts over the plant's remaining life.Provisions for depreciation, as a percent of average depreciable property, approximated 2.2%in 1986 and 1985 and 2.5%in 1984.Nuclear Decommissioning and F~uel Disposal An annual provision for decommissioning costs of the Susquehanna nuclear plant, equal to the amount allowed for rate-making purposes, is charged to operating expense.Such amounts, net of income taxes, are invested in securities kept in a segregated investment account which can be used only for future decommissioning costs.The U.S.Department of Energy (DOE)is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors.The Company currently pays DOE a fee for future disposal services and recovers such costs in customer rates.Premium on Reacquired Securities As provided in the Uniform System of Accounts, the premiums paid and expenses incurred in the refunding of long-term debt are deferred and amortized over the life of the new debt issue and premiums paid to retire preferred and preference stock are charged to retained earnings.
Allowance for funds Used Du ing Construction As provided in the Uniform System of Accounts, the cost of funds used to finance construction is capitalized as part of construction cost.The components of Allowance for Funds Used During Construction (AFUDC)shown on the Statement of Income under other income and deductions and interest charges are non-cash items equal to the cost of funds capitalized during the period.The equity funds component is reduced by the income tax savings realized due to the tax deductibility of construction-related interest.Under the Tax Reform Act of 1986 (Tax Act), most construction interest will no longer be deductible.
Accordingly, effective January 1, 1987, AFUDC will not be reduced by tax savings.AFUDC serves to offset on the Statement of Income the interest charges on debt and dividends on preferred and preference stock incurred to finance construction.
In addition, a return on common equity used to finance construction is imputed.(See Note 6).Capital Leases Capital leased property is recorded at the present value of future lease payments and is amortized so that the total of interest on the lease obligation and amortization of the leased property equals the rental expense allowed for rate-making purposes.(See Note 8).Revenues Revenues are recorded based on the amounts of electricity delivered to customers to the end of each accounting period.This includes amounts customers will be billed for electricity delivered from the time meters were last read to the end of the respective accounting period.The Company's PUC tariffs contain an energy cost rate under which customers are billed an estimated amount for fuel and other energy costs.Any difference between the actual and estimated amount for such costs is collected from or refunded to customers in a subsequent period.Revenues applicable to energy cost rate billings are recorded at the level of actual energy costs and the difference is recorded as payable to or receivable from customers.
Effective January 1, 1987, the Company began to apply an Income Tax Adjustment(ITA) credit to PUC customers'ills to reflect the expected reduction in income tax expense due to the Tax Act.Income Taxes The Company and its subsidiaries file a consolidated federal income tax return.Income taxes are allocated to the individual companies based on their respective taxable income or loss and investment and payroll-based tax credits.Income taxes applicable to the Company are allocated to operating expenses and other income and deductions on the Statement of Income.Under.other income and deductions, the income tax credits relate principally to the tax reductions associated with the interest expense that is offset by the borrowed funds component of AFUDC.Deferred income taxes are recorded for timing differences between book and taxable income to the extent they are permitted in rate determinations by regulatory agencies.The two principal items for which deferred taxes are not currently recorded are (i)certain pension costs and employee-related taxes capitalized for book purposes but deducted currently for income taxes and (ii)a portion of tax depreciation in excess of book depreciation related to property placed in service prior to 1980.Investment and payroll-based tax credits result in a reduction of federal income taxes payable.Such tax credits, other than credits resulting from contributions to the employee stock ownership plan, are deferred when utilized and amortized over the average lives of the related property.(See Note 5).Pension Plan The Company has a noncontributory pension plan covering substantially all employees.
Company contributions to the plan include current service costs and all amounts required to amortize unfunded prior service costs over periods of not more than 20 years.Effective January 1, 1987, the Company adopted the procedures required by Statement of Financial Accounting Standards No.87-Employers Accounting for Pensions.This statement prescribes procedures to determine periodic pension cost which differ from those previously used by the Company.(See Note 10).Reclassification Certain amounts from prior year financial statements have been reclassified to conform to the current year presentation.
32 2.Rate Matters In April 1985, the PUC granted$121 million of the$330 million net rate increase requested by the Company to reflect the operation of Unit 2 at the Susquehanna nuclear-fueled station and other increased costs of doing business.A return on the common equity investment in Susquehanna Unit 2 was denied based on the PUC's conclusion that the Company temporarily had too much generating capacity.This adjustment reduced requested revenues by about$161 million.The PUC order indicated that the equity disallowance would continue until the Company can show that Unit 2's net economic benefits exceed its net cost, or that its capacity is necessary for system reliability.
The other major adjustment disallowed recovery of about$37 million of the cost of electricity purchased from Allegheny Electric Cooperative, Inc.'s (Allegheny) 10%undivided interest in the Susquehanna units.The agreement with Allegheny provides that the Company will purchase declining amounts of electricity from Allegheny through early 1991.The Company appealed to the Commonwealth Court of Pennsylvania (Court)the PUC decisions regarding excess capacity and the purchases from Allegheny.
In October 1986, the Court affirmed the PUC's decision.Neither the Company nor any of the other parties to the appeal sought a review by the Pennsylvania Supreme Court.The PUC has approved the Company's request to reduce its retail rates by approximately
$32 million effective January 1, 1987.This net reduction reflects: (1)a$47 million decrease due to the lower income tax expense anticipated as a result of the Tax Act;(2)a$26 million decrease because of changes in the state tax surcharge; and (3)a$41 million increase in costs to be recovered through the energy cost rate.The FERC permitted annual increases in rates for wholesale customers of$4.2 million effective March 1984 and$5.7 million effective January 1986.3.Deferral of Susquehanna Operating and Carrying Costs In accordance with orders of the PUC, the Company deferred certain operating and capital costs, net of energy savings, associated with Susquehanna Units 1 and 2.The costs deferred were incurred from the date the units were placed in commercial operation until the effective dates of the rate increases reflecting operation of the units.The deferred costs plus related deferred income taxes totaled$39.2 million at December 31, 1986.The Company expects to ultimately recover this amount in rates charged to customers.
Such recovery will be subject to PUC review and approval.No return is being accrued on the deferred costs.4.Sales of Generating Capacity and Energy The Company provides Atlantic City Electric Company (Atlantic) with 125,000 kilowatts of capacity and energy from the Susquehanna units and Jersey Central Power and Light Company (JCP&L)with 945,000 kilowatts of the Company's total generating capacity and energy.The sales are made at a price equal to the Company's cost of providing service, which includes a return on the Company's investment in generating capacity.Sales to Atlantic began in 1983 and expire in 1991, when another agreement provides Atlantic with 125,000 kilowatts of capacity and energy from the Company's coal-fired stations until the year 2000.Sales to JCP&L began in 1985 and continue through 1995, with the amount then declining uniformly each year until the end of the agreement in 1999.5.Income Taxes Taxable income for 1985 was sufficient for the Company to utilize its loss carryforwards of approxi-mately$100 million so that the current provision for income tax expense in 1985 was reduced by approximately
$58 million to reflect the utilization of such carryforwards.
The reduction in the current provision for income taxes was offset on the Statement of Income by an equal decrease in the allowance for funds used during construction.(See Note 6).The Tax Act contains numerous provisions that will affect the Company.Some of the major provisions include a reduction in the corporate income tax rate, repeal of the investment and payroll-based tax credits and a reduction of the amount of investment tax credits which can be carried forward to reduce federal taxes payable.The Company will also be required to capitalize for tax purposes certain items such as interest, pension cost and payroll taxes which formerly were deductible when incurred.The expected reduction in tax expense due to the Tax Act will be passed through to customers by application of the ITA.33 The Tax Act requires that any unused investment tax credits at December 31, 1986 be reduced by 17.5%and that any such unused credits at December 31, 1987 be reduced by an additional 17.5%.The Company estimates that, after giving effect to the Tax Act and the generation of investment tax credits in 1987, approximately
$146 million of investment and payroll-based tax credits will be available to reduce federal income tax liabilities in 1987 and futureyears.
The carryforward period for the unused credits at December 31, 1986 expires in the years 1996 to 2001.The Company has not recorded deferred income taxes for certain timing differences in accordance with PUC rate treatment.
The cumulative net amount of such timing differences for which deferred income taxes have not been recorded approximated
$661 million at December 31, 1986.The Company would expect to recover through electric revenues the taxes when due in future years.See Note 15 for information concerning a proposed accounting statement for income taxes.6.Allowance for Funds Used During Construction Through 1986, AFUDC was recorded on an after-tax basis with the equity component reduced by the income tax savings realized due to the tax deductibility of construction-related interest.The Company had tax losses during the period 1982-1984 due in part to the large amount of construction interest incurred.As a result, the income tax reduction reflected in AF<UDC in those years was limited to the tax applicable to construction interest determined to be usable as a tax deduction.
Taxable income for 1985 was sufficient to permit the Company to utilize all of its loss carryforwards that existed at the end of 1984.Accordingly, AF<UDC for 1985 was reduced by about$58 million representing the tax effect of prior year construction interest included in the loss carryforwards.
7.Stock Held for Dividend Reinvestment Plan At December 31, 1986, the Company temporarily held 284,730 shares of Common Stock which were acquired in the open market for distribution to participants in the Dividend Reinvestment Plan.8.Leases Property under capital leases consists of the following (thousands of dollars): Nuclear fuel, nct of accumulated amortization-1986,$106,030;1985,$137,974 Vehicles, oil storage tanks and other property, nct of accumulated amortization
-1986,$52,119;1985,$44,259.Nct property under capital leases.December 31 1986 1985$325,365$317,212 78,433 79,318$403,798$396,530 Nuclear fuel lease payments, which are charged to expense as the fuel is used for the generation of electricity, were$68.0 million in 1986 and$78.5 million in 1985.F<uture nuclear fuel lease payments will be based on the quantity of electricity produced by the Susquehanna units.The maximum amount of unamortized nuclear fuel leasable under current arrangements is$350 million.Future minimum lease payments under capital leases in effect at December 31, 1986 (excluding nuclear fuel)would aggregate$104.1 million, including$25.6 million of imputed interest.During the five years ending 1991, such payments would decrease from$20.3 million per year to$10.2 million per year.Interest on capital lease obligations was recorded as operating expenses on the Statement of Income in the following amounts (thousands of dollars): 1986,$15,889;1985,$18,256 and 1984,$13,836.Generally, capital leases contain renewal options and obligate the Company to pay maintenance, insurance and other related costs.The Company also has entered into various operating leases which are not material with respect to the Company's financial position.9.Credit Arrangements The Company issues commercial paper and, from time to time, borrows from banks to provide short-term funds required for general corporate purposes.Revolving credit arrangements are maintained with a group of banks principally as a back-up for the Company's commercial paper.The banks have committed to lend the Company up to$200 million on a revolving basis in return for the payment of commitment fees.Any loans made under these credit arrangements would mature on June 30, 1990 and, at the option of the Company, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate.The Company also maintains lines of credit aggregating
$35 million with various banks in return~34 s for the maintenance of compensating balances or the payment of commitment fees.Bank borrowings generally bear interest at rates negotiated at the time of the borrowing.
There were no borrowings outstanding at the end of 1986 under these credit arrangements.
Commitment fees incurred were (millions of dollars): 1986,$0.5;1985,$1.6 and 1984,$2.6.10.Pension Plan and Other Postemployment Benefits Pension costs were (millions of dollars): 1986,$29.1;1985,$27.3 and 1984,$29.0.Of these amounts,$18.7 million in 1986,$18.9 million in 1985 and$18.0 million in 1984 were charged to operating expenses, and the balance was charged to construction and other accounts.The actuarial present value of accumulated pension plan benefits and net assets at the end of the plan's recent fiscal years were as follows (thousands of dollars): June 30 1986 1985 Actuarial present value of accumulated plan benefits: (a)Vested Nonvested.$229,760$203,466 13,152 12,584$242,912$216,050 Net assets available for benefits.$487,691$369,371 (a)Excludes accumulated plan benefits which are the obligation of four insurance companies under insurance contracts.
The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 6.5%for both the June 30, 1986 and the June 30, 1985 valuations.
The Financial Accounting Standards Board (FtASB)has issued an accounting statement which establishes new procedures to determine pension cost and increases related disclosure requirements.
The Company adopted the procedures required by this statement effective January 1, 1987 and expects that pension cost will decline to about$16 million in 1987.Substantially all of the Company's employees will become eligible for certain health care and life insurance benefits upon retirement.
The cost of these benefits for retired employees is generally recognized as expense when premiums are paid.Such costs were approximately (millions of dollars): 1986,$3.5;1985,$2.0 and 1984,$2.3.ll.Jointly Owned Facilities At December 31, 1986, the Company owned undivided interests in the following jointly owned facilities (millions of dollars): Ownership Interest............
Utility Plant in Service.Accumulated Depreciation Construction Work in Progress.Generating Stations-Susquehanna Keystone Conemaugh 90.00%, 12.34%11.39%$3,712$40$37 93 15 14 113 1 3 Merrill Creek Reservoir 8.37%$8 Each participant in these facilities provides its own financing.
The Company receives a portion of the total output of the generating stations equal to its percentage ownership.
The Company's share of fuel and other operating costs associated with the stations is reflected on the Statement of Income.The Merrill Creek Reservoir is under construction and will provide water during periods of low river flow to replace water from the Delaware River used by the owners in the production of electricity.
12.Affiliated Company Transactions The principal transactions with affiliated companies involve the purchase of electricity from Safe Harbor Water Power Corporation, the purchase of coal, the payment of interest and other costs related to coal reserves and the payment of charges for transportation of oil by pipeline.Costs related to these transactions with affiliates aggregated (millions of dollars): 1986,$218.5;1985,$271.0 and 1984,$291.9.Under equity accounting, the operations of affiliated companies resulted in after-tax charges against the Company's net income of (millions of dollars): 1986,$0.8;1985,$2.6 and 1984,$4.1.At December 31, 1986, the Company had guaranteed
$236.4 million of the obligations of affiliated companies.
13.Affiliated Coal-Mining Operations The Company purchased approximately
$196 million of coal from its affiliated mining companies in 1986 at prices equal to the cost of mining.The cost of coal purchased is included in the energy costs collected from customers.
The cost of affiliated coal (particularly coal from the Greenwich mine)has generally been higher than the cost of coal purchased from other sources.All the coal mined at the Greenwich mine is delivered to the Company's Montour generating station and accounts for about one-half of the coal burned at Montour.The PUC has adopted a standard against which the cost of all coal delivered to Montour will be measured over a two-year trial period which began Apri11, 1986.The standard is determined monthly based on the cost of coal purchased by other Pennsylvania electric utilities.
At the end of the trial period, the net amount of any costs in excess of, or less than, the standard will be determined.
Unless the standard is continued beyond the trial period, the net amount of any costs in excess of the standard will be returned to PUC customers through the Company's 1989-1990 energy cost rate.Data as to the standard is available for the period April 1, 1986 through September 30, 1986.For this period, the cost of coal delivered to Montour has been less than the standard.Plans have been adopted which will result in phasing out mining operations of affiliated companies by the mid-1990s.
The Company expects that over this period investments in coal and facilities will be recovered and that coal will be produced at prices that will be recovered in electric rates.However, the Company cannot predict what future action may be taken by the PUC or whether future events or circumstances could substantially alter the current mining plans.Adverse action by the PUC or adverse changes in the mining plans could result in material charges against the Company's earnings.At December 31, 1986, the capital investment by affiliated companies in coal-mining operations amounted to about$93 million.14.Utility Plant Carrying Charges In December 1986, the Company reclassified from utility plant to deferred debits$28.6 million of net carrying charge accruals recorded on certain facilities for Susquehanna and Martins Creek generating stations.The deferred amount will be amortized to expense over the remaining life of the stations.This resolves a contested accounting and reporting matter which resulted from an examina-tion of the Company's books by the FERC.15.Accounting Statements The FASB issued an accounting statement in December 1986 that established accounting rules to be used by rate-regulated utilities in accounting for plant abandonments and disallowed plant costs.The Company believes it has no situations covered by the statement, including the Susquehanna Unit 2 disallowance, referred to in Note 2.The FASH previously had proposed accounting for phase-in plans but this matter was deferred for further consideration.
In September 1986, the FASH issued a proposed accounting statement that would change the manner in which income tax expense is determined for accounting purposes.Current accounting rules utilize a deferred method while the new accounting proposal utilizes a liability method under which deferred tax liabilities would be recorded and adjusted, when required, for the effect of a change in tax law or rates.Because the Tax Act will lower the top corporate tax rate from 469o to 34/, most entities would be required to adjust their deferred income tax reserves to reflect the lower tax rate if the FASH proposal becomes effective.
However, the Tax Act essentially prohibits utilities from adjusting, to the 34%tax rate, deferred tax reserves related to the Accelerated Cost Recovery System of depreci-ation.As a result, the Company does not expect any substantial reduction in its current deferred income tax reserves in the event that the FASB proposal becomes effective.
In December 1986, the FASH issued a proposed accounting statement that would require the Company to prepare consolidated financial statements that include majority-owned subsidiaries.
If the proposal is adopted in its current form, the most significant effect on the Company's financial statements would be the addition of about$275 million of assets and liabilities on the balance sheet.A substantial portion of the liabilities would represent obligations of subsidiaries currently guaranteed by the Company.With regard to the preceding proposed accounting statements, the Company cannot predict what final accounting rules the FASH may adopt, or the ultimate effect, if any, that such accounting may have on the Company's net income or financial position.See Note 10 for information on a FASH statement relative to pension costs.36 16.Commitments and Contingent Liabilities The Company's construction expenditures are estimated to aggregate$283 million in 1987,$296 million in 1988 and$292 million in 1989, including the allowance for funds used during construc-tion.See the section entitled Capital Expenditure Requirements on page 20 for additional information.
The Company is a member of certain insurance programs which provide coverage for property damage to members'uclear generating plants.Facilities at the Susquehanna plant are insured against property damage losses up to$1.2 billion under these programs.The Company is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the property and replacement power insurance programs, the Company could be assessed retrospective premiums in the event the insurers'osses exceed their reserves.The maximum amount the Company could be assessed during the current policy year is about$16 million.The Company's public liability for claims resulting from a nuclear incident is limited currently to$700 million under provisions of the Price-Anderson Act.The Company is protected against this potential liability by a combination of commercial insurance and an industry assessment program.In the event of a nuclear incident at any of the facilities owned by others and covered by the Price-Anderson Act, the Company could be assessed up to$10 million per incident, but not more than$20 million in a calendar year in the event more than one incident is experienced.
Congress is considering several proposals to amend the Price-Anderson Act which expires in August 1987.The proposed amendments generally include provisions which would increase the public liability limit of utilities in the event of a nuclear incident.The Company is unable to predict what action Congress might ultimately take regarding the Price-Anderson Act and what effect such action or expiration of the Price-Anderson Act might have on the Company's potential liability.
In December 1986, the Company redeemed at$100 per share$87.7 million of Preferred Stock representing all outstanding shares of the 10.75%, 11.00%, 11.25%and 14.00%Series Preferred Stock.Several complaints have been filed in the United States District Court by holders of shares of the 10.75%, 11.00%and 14.00%Series requesting a declaratory judgment that the Company's redemp-tion of those three series breached the Company's contractual obligations to the plaintiffs and that (a)the Company is liable to pay plaintiffs amounts equal to the redemption premiums of$3.59 per share with respect to the 10.75%Series,$25 per share with respect to the 11.00%Series and$20 per share with respect to the 14.00%Series, and (b)in the alternative the redemption be rescinded and plaintiffs be awarded damages in amounts to be ascertained.
The Company believes that it was entitled to call the Preferred Stock for redemption at a price of$100 per share but cannot predict the outcome of the court proceedings.
See Note 12 for information about the Company's guarantee of affiliated companies'bligations.
17.Quarterly Financial, Common Stock Price and Dividend Data (Unaudited)
For the C}uarters Ended: March 31 June 30 Sept.30 Dec.31 (Thousands of Dollars, Except Per Share Amounts)Operating revenues$596,087$518,514$528,650$545,674 Operating income 167,334 131,499 143,201 147,291 Net income.95,151 60,521 67,531 76,905 Earnings applicable to common stock............
74,830 43,575 51,260 61,386 Earnings per common share (a).................
1.00 0.58 0.69 0.82 Dividends declared per common share (b)........
0.64 O.G4 0.65 0.65 High/low price per common share (c)............
33/J27/s 34/31/s 43/s/33/s 40/4/36 1985 Operating revenues$486,495$479,762$483,782$526,463 Operating income.122,122 122,003 136,733 145,630 Net income 104,551 58,949 60,573 66,540 Earnings applicable to common stock............
81,221 35,940 38,042 44,124 Earnings per common share (a).................
1.09 0.48 0.51 0.59 Dividends declared per common share (b)........O.G4 0.64 0.64 0.64 High/low price per common share (c)............
27/s/24/s 27/J23/s 27/s/23/s 29/23/4 (a)The quarterly amounts do not equal annual earnings per share due to rounding.(b)The Company has paid quarterly cash dividends on its common stock in every year since 1946.The dividends paid per share in 198G and 1985 were$2.57 and$2.54, respectively.
The most recent regular quarterly dividend paid by the Company was 65 cents per share (equivalent to$2.60 per annum)paid January 1, 1987.Future dividends will be dependent upon future earnings, financial requirements and other factors.(c)The Company's common stock is listed on the New York and Philadelphia Stock Exchanges.
37 Selected Financial and Operating Data 1986 1985 1984 1983 1982 Income Items-thousands Operating revenues Operating income.Allowance for funds used during construction...
Net income.Earnings applicable to common stock...~~..Balance Sheet Items-thousands (a)Net utility plant in service.Construction work in progress.............
Total assets Long-term debt.Preferred and preference stock With sinking fund requirements..........
Without sinking fund requirements
.......Common equity.Short-term debt Total capital provided by investors....
~...~.Financial Ratios Return on average common equity-%.......Embedded cost rates (a)Long-term debt-%Preferred and preference stock-%........Times interest earned before income taxes..~Ratio of earnings to fixed charges-total enter prise basis (b)Depreciation as%of average depreciable property.Common Stock Data Number of shares outstanding
-thousands Year-end.Average.Earnings per share.Dividends declared per share..............
Taxability of dividend income-%(c)........
Book value per share (a).Market price per share (a).................
Dividend payout rate-%Dividend yield-%(c)(d)Price earnings ratio (d).Fuel Cost Data Cost per kwh generated-cents Coal-fired steam stations................
Nuclear steam station (e)................
Oil-fired steam station Combustion turbines and diesels (oil)......
Average.Cost of fossil fuel received at steam stations Coal-per ton.Residual oil-per bbl.Employees (a)$2,188,925 589,325 11,352 300,108 231,051$1,976,502 526,488 (29,301)290,613 199,327$1,562,782 406,958 168,938 318,903 226,758$1,248,397 289,930 251,548 296,011 210,173$1,219,548 223,083 246,423 278,886 210,572 475,239 231,375 1,915,649 112,000 5,513,054 691,010 231,375 1,905,700 95,500 5,528,521 738,027 231,375 1,896,987 104,800 5,575,695 714,830 231,375 1,767,949 190,000 5,291,403 621,634 231,375 1,643,695 160,545 4,980,567 12.11 10.54 8.33 2.80 2.59 2.2 10.42 11.24 10.02 2.37 2.19 2.2 12.30 11.12 9.94 2.35 2.06 2.5 12.29 10.98 9.66 2.29 2.04 2.7 13.60 10.81 9.41 2.05 1.81 3.3 74,513 74,513$3.10$2.58 100.00$25.71$36M 83 7.30 11.39 74,513 74,513$2.68$2.56 100.00$25.58$283/4 96 9.81 9.76 74,513 72,767$3.12$2.48 63.29$25.46$25~/s 80 11.00 7.24 70,335 68,642$3.06$2.40 0$25.12$205/8 79 10.48 7.48 66,461 62,809$3.35$2.32 0$24.71$21 70 11.95 5.79 1.67 0.58 2.96 7.81 1.57$40.17$16.83 8,339 1.78 0.61 5.02 9.31 1.81$42.00$28.42 8,433 1.75 0.54 5.31 9.82 1.98$42.75$31.32 8,386 1.68 0.66 5.23=10.21 2.15$39.37$29.79 8,160 1.77 5.62 10.74 2.20$42.32$30.94 8,208$5,815,838$5,776,687$3,860,960$3,847,301$2,112,169 224,426 161,684 2,020,839 1,730,228 2,923,841 7,139,072 6,965,639 6,910,783 6,418,509 5,829,138 2,778,791 2,604,936 2,604,506 2,387,249 2,323,318 (a)Year-end.(b)Fixed charges consist of interest on short-and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals.(c)Based on holding one share of common stock for the entire year.(d)Based on average of month-end market prices.(e)The Company's first nuclear unit was placed in commercial operation on June 8, 1983 and the second unit on February 12, 1985.(f)The winter peaks shown were reached early in the subsequent year.
Sales Data Electric customers (a).Average annual residential kwh use........
Electric energy sales billed-millions of kwh Residential
.Commercial Industrial
.Other System sales.Contractual sales to other utilities........
Total electric energy sales billed.......Sources of energy sold-millions of kwh Generated Coal-fired steam stations..............
Nuclear steam station (e).............
Oil-fired steam station................
Combustion turbines and diesels (oil)...Hydroelectric stations................
1986 1,073,146 9,344 8,771 7,159 7,986 1,170 25,086 5,339 30,425 25,151 10,151 5,453 17 739 1985 1,055,546 9,034 8,354 6,728 7,907 1,082 24,071 4.048 28,119 26,237 11,534 4,316 18 612 1984 1,039,381 9,282 8,454 6,527 8,117 1,043 24,141 357 24,498 26,695 6,295 4,121 32 747 1983 1,026,144 9,051 8,138 6,119 7,623 968 22,848 209 23,057 26,885 4,509 5,581 45 700 1982 1,013,623 9,039 8,045 5,946 7,324 982 22,297 22,297 25,477 293 3,186 13 612 Power purchases Interchange power sales......
~~....Company use, line losses and other...Total electric energy sales billed...Electric Revenue Data By class of service-thousands Residential Commercial Industrial
.Other energy sales.System sales Contractual sales to other utilities....
Total from energy sales billed...~.Unbilled revenues, net........,.....
Other operating revenues.....,....
~.Total electric operating revenues.Average price per kwh billed-cents Residential
.Commercial Industrial
.Total for ultimate customers......Total for all customers.....
~......Total for system sales........~...41,511 2,032 (11,281)(1,837)30,425$714,753 557,216 473,488 74,047 1,819,504 292,044 2,111,548 52,344 25,033$2,188,925 8.15 7.78 5.93 7.346.94 7.25 42,717 3,716 (16,235)(2,079)28,119$634,669 492,686 438,427 64,223 1,630,005 232,598 1,862,603 78,545 30,059$1,971,207 7.60 7.32 5.55 6.85 6.62 6.77 37,890 3,765 (15,377)(1,780)24,498 37,720 3,880 (16,405)(2,138)23,057 29,581 1,414 (6,900)(1,798)22,297$591,922 441,651 411,533 59,526 1,504,632 31,809$529,911 386,617 367,950 47,275 1,331,753 18,494$503,557 363,233 347,726 47,731 1,262,247$1,556,676$1,243,680$1,213,303 7.00 6.77 5.07 6.30 6.27 6.23 6.51 6.32 4.83 5.91 5.86 5.83 6.26 6.11 4.75 5.74 5.66 5.66 1,536,441 1,350,247 1,262,247 (9,725)(119,539)(61,652)29,960 12,972 12,708 Generation Data Generating capability
-thousands of kw (a)..Winter peak demand-thousands of kw (f)..Generation by fuel source-%Coal Nuclear (e).Oil.Hydroelectric Steam station availability-%
Coal-fired
.Nuclear (e).Oil-fired Steam station utilization
-%Coal-fired
.Nuclear (e).Oil-fired 7,519 5,154 60.6 24.4 13.2 1.8 78.8 61.7 84.7 69.3 61.3 38.0 7,513 4,981 61.4 27.0 10.2 1.4 78.6 70.7 87.2 72.3 70.5 30.0 7,484 5,519 70.4 16.6 11.0 2.0 75.2 66.7 68.0 73.3 65.7 28.6 7,494 4,869 71.3 11.9 14.9 1.9 78.8 67.7 75.8 74.0 67.5 38.8 6,546 4,489 86.1 1.0 10.8 2.1 79.1 80.4 70.2 22.2 39 Officers Directors a ROBERT K.CAMPBELL, President and Chief Executive Officer MERLIN F.HERTZOG, Executive Vice President-Corporate Services JOHN T.KAUFFMAN, Executitu Vice President-Operations CHARLES E.RUSSOLI, Executive Vice President-Financial BRUCE D.KENYON, Senior Vice President-I<luctear LEON L.NONEMAKER, Senior Vice President-Division Operations JOHN R.BIGGAR, Vice President-Finance GENNARO D.CALIENDO, Vice President and General Counsel JOHN M.CHAPPELEAR, Vice President-Intv'.stments and Pensions THOMAS M.CRIMMINS JR., Vice President-Pou:er Production ROBERT S.GOMBOS, Vice President-Human Resource<i'c Development CHARLES J.GREEN, Vice President-Harrisburg Dcvision WILLIAM F<.HE<CHT, Vice President-System Pouter HAROLD W.KEISER, Vice President-I<luctear Operations JOHN P.KIERZKOWSKI, Vice President and Treasurer CARL R.MAIO, Vice President-Lehigh Division GRAYSON E.McNAIR, Vice President-
<'tfarketing
&Customer Services EDWARD M.NAGEL, Vice President and Secretary HERBERT D.NASH JR., Vice President-Central Division CLAIR W.NOLL, Vice President-Procurement Z Computer Scrviccs JOHN E.ROTH, Vice President-Northern Division JOHN H.SAEGER, Vice President-Susquehanna Division EDWIN H.SEIDLER, Vice President-Engineering
<f;Constrccction-Systenc Power<f;Enginccri ng BRENT S.SHUNK, Vice President-i.ancaster Division JEAN A.SMOLICK, Assistant Secretary GEORGE F.VAN DERSLICE, Vice President and Comptroller PAULINE L.VETOVITZ, Assistant Secretary HELEN J.WOLF'ER, Assistant Secretary and Assistant Treasurer Corporate ilfanagement Committee:
Robert K.Campbell, chairman;Merlin F.Hertzog, John T.Kauffman, Charles E.Russoli, Bruce D.Kenyon, Leon L.Nonemaker, and Edward l'.Reis, Director-Corporate Planning, serving as the committee's executive secretary.
CLIFFORD L.ALEXANDER JR., Washington, S.C."'President, Alexander&Associates Inc.Consultants to business, government and industry ROSWELL BRAYTON SR., Woolrich Chairman of the Board and Chief Executive Officer,'lVoolrich lVoolen Mills Inc.Mantcfacturer of garments for ouldoor activities JEFFREY J.BURDGE, Camp Hill Chairman of tice Board and Clcief Executive Officer, Harsco Corporation.
Manufacturer of processed and fabricated metals ROBERT K.CAMPBELL, Allentown President and Chief Executive Officer EDGAR L.DESSEN, Hazleton Physician-Radiologist EDWARD DONLEY, Allentown Chaimnan, Executive Commitlee, Air Products and Chemicals Inc.llfanufacturer of industrial and commercial gases and chemicals REV.DANIEL G.GAMBET, O.S.F.S., Center Valley President, Al(entotvn College of S4 Francis de Sales MERLIN F.HERTZOG, Allentown Executive Vice President-Corporate Services FRANCES R.HL<SSELBE<IN, New York City National Executive Director, Girl Scouts of the U.S.A.HARRY A.JENSEN, Lancaster Director and former Chief Executive Officn;Armstrong lVorld Industries I>>c.Manufacturer of interior furnislcings and specialty products JOHN T.KAUFFMAN, Allentown Executive Vice President-Operations HAROLD S.MOHLER, Hershey Former Chairman of the Board, Hershey Foods Corporation.
Diversified manufaclurer of food products RALPH W.RICHARDSON JR., State College Consullant, agricultural and environmental sciences NORMAN ROBERTSON, Pittsburgh Senior Vice President and Chief Economist, Mellon Bank, l<I.A.CHARLES E.RUSSOLI, Allentown Executive Vice President-Financial DAVID L.TRESSLER, Scranton Chairman of the Board and Chief Executive Officer, Northeastern Bank of Pennsylvania Executive Committee:
Robert K.Campbell, chairman;Edgar L.Dessen, Harry A.Jensen and Norman Robertson.
Audit Committee:
David L.Tressler, chairman;Clifford L.Alexander Jr., Roswell Brayton Sr., Rev.Daniel G.Gambet, ilarold S.Mehler and Ralph W.Richardson Jr.Corporate Responsibility Committee:
Frances R.Hesselbein, chairman;Jeffrey J.Burdtte, Edgar L.Dessen, Rev.Daniel G.Gambet, Harold S.Mohler and Davul L.Tressler.Management Development and Compensation Committee:
Roswell Brayton Sr..chairman;Clifford L.Alexander Jr., Edgar L.Dessen, Edward Donley and Norman Robertson.
Nominating Committee:
Ralph W.Richardson Jr..chairman;Jeffrey J.Burdge, Edward Donley, Frances R.Hesselbein and Harry A.Jensen.Form 10-K and PP&L PROFILE The company's annual report filed with tltc Securities and Exchange Commission on Form 10-K will bc available mid-March.
Each year the company publishes the PP&L Profile, a 10-year statistical review, containing in.depth information about the company.The 1976-198G Profile will be available in May.A shareowner may obtain a copy of these publications, at no cost, by writing to Pennsylvania Power&Light Company, Two North Ninth Street, Allentown, PA 18101, Attention:
Mr.Gcorgc I.Klinc, Manager-Investor Services.40 Board of Directors$$t<tI Alexander Brayton urdge Dessen ,<./!,!.'f r,'iy Donley Gambet Hesselbein Jensen~I, vl Mohler Richardson Robertson Tressler Corporate Management Committee 4 a4N lNi)I 4 Nonemaker Hertzog Campbell Kauffman Russoli Kenyon
~ggQg Pennsylvania Power&Light Company Two North Ninth Street~Allentown, PA 18101~215 I 770-5151 BULK RAgE U.S.POStAGE PAID Allentown.
Pa.Permit No.104 Fiscal Agents Securities Listed On Exchanges TRANSFER AGENTS FOR PREFERRED, PREFERENCE AND COMMON STOCK Morgan Shareholder Services Trust Company 30 West Broadway New York, New York 10007-2192 Pennsylvania Power&Light Company Manager-Investor Services Two North Ninth Street Allentown, Pennsylvania 18101'EGISTRARS FOR PREFERRED, PREFERENCE AND COMMON STOCK Morgan Shareholder Services Trust Company 30 West Broadway New York, New York 10007-2192 Pennsylvania Power&, Light Company Manager-Investor Services Two North Ninth Street Allentown, Pennsylvania 18101 DIVIDEND DISBURSING OFFICE AND DIVIDEND REINVESTMENT PLAN AGENT Pennsylvania Power&Light Company Vice President and Treasurer Two North Ninth Street Allentown, Pennsylvania 18101 NEW YORK STOCK EXCHANGE 4tvaa%Preferred Stock (Code: PPLPRB)4.40%Series Preferred Stock Code: PPLPRA)8.60%Series Preferred Stock Code: PPLPRG)9.24%Series Preferred Stock Code: PPLPRM)Preference Stock,$8.00 Series Code: PPLPRJ)Preference Stock,$8.40 Series Code: PPLPRH),Preference Sto'ck,$8.70 Series Code: PPLPRI)-'Prefer'ence Stock.$11.00 Series (Code: PPLPRL)Comm'on Stock (Code: PPL)PHILADELPHIA STOCK EXCHANGE 4'%referred Stock 3.35%Series Preferred Stock 4.40%Series Preferred Stock 4.60%Series Preferred Stock 8.60%Series Preferred Stock 9%Series Preferred Stock 9.24%Series Preferred Stock Preference Stock,$8.00 Series Preference Stock,$8.40 Series Preference Stock,$8.70 Series Preference Stock,$11.00 Series Common Stock