ML19257A781
| ML19257A781 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1978 |
| From: | PENNSYLVANIA POWER CO. |
| To: | |
| Shared Package | |
| ML19257A779 | List: |
| References | |
| NUDOCS 8001080430 | |
| Download: ML19257A781 (35) | |
Text
{{#Wiki_filter:Pennsylvania Power Company _ b a . Annual Report 1978
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\fIH The CAPCO Power Pool Five electric utility companies in Western Pennsylvania and y Northern Ohio have joined together for the development of
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pou er generation and transmission facilities. Members include
***** Pennsylvania Potter Company, Duquesne Light Company, The
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- Cleveland Electric Illuminating Company, Ohio Edison Company and The Toledo Edison Company.
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Highlights Contents: of the year . . . The Company was granted a rate Map . . . Inside Front Cover increase of $23.3 million Highlights of the Year . . 1 August 30,1978, largest in its Brief Financial Summary ... . 2 history. Directors and Officers . 3 Report to the Stockholders . 4 Total operating revenues were 1978 in Review. . 6 S119.1 million, an 18.12 (> Revenues and Sales . . . 6 Operating Eenses . 6 increase. Marketing . . . . 7 Communications. . . 9 Average annual use per residential Construction . . 11 customers was 7,679 kilowatt- EnCronmental Matters . . 11 hours, up 131 kilowatt-hours. Litigation . . . . . . 13 Personnel. . .. ... 14 On September 20,1978 a new Shareholders. . . . 15 system peak load of 552,000 operating Statistics . . . 17 kilowatts was recorded. Managsmant Discussion and Analysis 18 Financial Statistics. 19 Financial Statements . 20 32 By May all generating units at the Auditors, Report. .inside Back Cover New Castle Power Plant were utilizing the new air pollution controls, a $39.7 million project.
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A __ b Air pollution controlproject at the Y COVER. G. E. Slaisom and O. E. .Vew Castle Power P! ant features a Wagner, electrical mechanics in the 750-foot high chimney and banks of Company's 3fercer County Substation electrostatic precipitators. By 3 fay Department are shown as they 1978 allfive units were connected installed 138-kilovolt air-break switches and using the new controls. View at at the AlcDowellSubstation. right is from top ofplant looking north. 1705 316 MO 1
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Brief Financial Summary increase 1978 1977 % oo o ' " D'3~ REVENUES RECEIVED:
'" "'*"d' b6 w3 . - 3 Ope. ' ting revenues-From sale of electricity and miscellaneous revenues $119.118 S100,843 18.12 Other income net. , , 4.810 5.352 (10.13)
Total. . 123.928 106,195 16.70 REVENUES PROVIDED FOR: Wages to employees, including costs of pensions, group life insurance, hospitalization and other
.- . benefits . 14,154 12,696 11.48 Cost of fuel (1) . 38,608 35,092 10.02
, Materials and supplies and other expenses 17,911 14,332 24.97 Electricity purchased, plus net interchange with other electric utility companies . 3.134 (1,052) -
Taxes federal, state and local . 9.669 8.640 11.91 Provision for depreciation. 11,887 10,654 11.57 Amortization of debt discount, premium and expense - net 112 98 14.29 Interest expense - net . 13,466 10,224 31.71 Capital stock issuance expense . 12 33 (63.64) Preferred stock dividend requirements. 4.660 3.873 20.32 Preferred stock divider.ds declared in excess i of requirements. 174 - 100.00 {c. 'f , { ,{ Common stock dividends 5.452 7.220 (24.40) Total. 119.239 101.810 17.12
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INCREASE IN RETAINED EARNINGS. S 4.689 $ 4.385 6.93 (1) Amounts for 1978 and 1977 include a decrease of $1,175,344 and $182.568, respectively, representing the net amcrtization of the previously deferred fuel adjustment and energy
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_ _. Tall chimneys and huge cooling towers identify the operating and Unit No. 3 scheduled for commercial Bruce .Vansfield Plant on the Ohio River at operation in 1980, the plant will have a total net Shippingport, PA. With two generating units no.c dependable capability of 2,.17.5 megawatts. 1705 317
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J J. F. DUN LEVY D. BRUCE ilANSFIELD JOIIN R. WillTE Vice President of the Company Retired-formerly Chairman of the Chairman of the Board of the Com-New Castle, Pennsylvania Board and President of the Company pany, and President ofits parent, A r n, Ohio OMo mon Cornpany, Akron, Ohio J. R. EDG ERLY Secretary and General Counsel of the W. F. REEllER C. .\l. WillTTAKER Company, New Castle, Pennsylvania Vice President of the Company Retired-formerly Chairman of the
,, New Castle, Pennsylvania Board, Universal-Rundle Corporation.
Ch i an o he Board, IV. S.
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Hodge Foundry,Inc., Greenville, W. Ii. 5 A.\\\115 Retired-formerly Chairman of the V "$tl . ennsy - Pennsylvania Board and President of the Com. \l. L. W1L50N pany, Akron, Ohio heasurer of the Company
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RAY E. Sell.\lLER President of the Company G. L. WLNGER New Castle, Pennsylvania Group Vice President-Foundries, Sfidland.Ross Corporation, castings manufacturer, Sharon, Pennsylvania Officers JollN R.WillTE \l. L. WILSON ANGEL.INE CollPARONE Chairman of the Board Treasurer Assistant Secretary RAY E. 5 Ell \lLER J. R. EDG EltLY DIVI 510.\ \lAN AGEI! President Secretary and General Counsel J.R.TUVYER 3#"### C ""'# W. K. CONOVER R. P. AR.\l5TRONG Vice President Assistant Secretary and Assistant Sir \Vhite is president of the parent Tnasunr company, Ohio Edison Company. The J. F. Dl'NLEVY Vice President W. A. .\1ARGRAF principal employment of allother Assistant Secretary and Assistant officers is with the Company. W. F. REEllER
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neasurer Vice President
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What had been for the past few Report to the years an ever-darkening financial Kilowatt-hour sales to all classes of customers showed an increase of 4.1Po over 1977, which is fairly Stockholders picture brightened somewhat when the Pennsylvania Public Utility consistent with national figures Commission (PUC) g. mted the published by the Edison F.lectric Company a S23.3 million rate Institute. The increase i' lectric increase August 30,1978. The sales, higher fuel costs arrecting increase became effective customer bills, and the rate increase September 1,1978. produced a 19.5Fe increase in electric sales revenues. Total operating This was the largest rate increase revenues were S119.1 million. in Company history, but still considerably less than the S35.5 A general cutback in the CAPCO million requested in the original power pool construction program, filing. affecting completion dates of seven nuclear generating units, was a m 9. announced in mid-November 1978. D D D }. } The increase was requested for several reasons, the foremost being Three units will be delayed for oo o[ )]. , the effects of inflation on our costs penods varymg from 16 to 24
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of doing business and the placing months, and it is estimated that the into commercial operation of three remaining four will be delayed an generating units in which the average of 36 months. The con-Company shares ownership as part struction of the coal-fired Bruce of the Central Area Power Alansfield Unit No. 3 will continue Coordination tCAPCO) group. as scheduled and is due to be These were the nuclear Beaver completed in October 1980. Valley Power Station Unit No.1 and the coal-fired Bruce Alansfield With the completion of the New Plant Units Nos.1 and 2 at Castle Power Plant air pollution Shippingport, PA. Construction of control project and the cutback in these facilities and the air pollution CAPCO construction schedules, control project at the New Castle somewhat less construction capital Power Plant, and rising costs of will be required in 1979 than in operation and maintenance, were recent years. Approximately $49.3
- major factors in increased costs million has been budgeted for 1979.
since the Company filed foritslast ute increase in 1975. This reduction in construction
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activity reflects the continued
% In spite of the rate increase, problems confronting our capital which was in effect for only part of intensive industry, as continually
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4 ~- the year, the Company's earnings rising material and construction declined for the second year in a costs challenge our ability to raise e row, with net earnings for common the required capital. Environmental y stock, decreasing 11.3?c compared to 19,,s . and regulatory uncertainties and g reduced load forecasts were 0 - also among the reasons for the CAPCO cutbacks. De While the cutbacks will not affect W our ability to provide adequate power to our customers in the immediate future, they may well increase the risk of shortages of power within the coming decade. Predictions of such shortages have been made by numerous energy experts, with brownouts and perhaps even blackouts a possibility in the 1980s. Ray E. Semmlerpresented John R. White with his 25-year service award. a handsome mantel clock. 1705 319 4
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. Various critics of our industry expecting a favorable outcome of While problems both simple and declare we are crying " wolf" when our rate increase request and complex seem to plague and we agree with predictions of envisioning an improved financial challenge all segments of the energy coming energy shortages. Such situation, did not chang; our rating industry, there continues to be an entics, of course, freely disparage from its A status, air of confidence in our abilities to the industry with rhetoric based meet the challenge. This confidence more on a variety of emotional Financing plans for the coming was well illustrated by the actions appeals than on reality-the reality year include the sale of $20 million of management, supervisors and of facts which face the industry. first mortgage bonds in Stay 1979. employees in January 1978 during Also, in 1979 it is expected that one of the most severe winter S8 - $13 million principal amount storms ever to strike our service It,s a fact that coal and nuclear area. Their diligence in rapidly of pollution control bonds will be energy must be our basic and major sold by industrial development restoring service is indicative that sources of energy for at least two t authorities with the proceeds to be the spirit of service has not three decades. It's a fact that, used by the Company to pay part diminished. We, and the board of despite all of the research being of the cost of the pollution. control directors, appreciate the confidence, done today on the so-called equipment at the New Castle Power skills and dedication of our exotic energy sources, such Plant and the Bruce Stansfield Plant. employees in meeting daily sources simply cannot play any challenges throughout the year. significant role in the nation's energy supply for many years. As A revenue increase of 31.3 million the utility responsible for the per year to the Company's five electric energy needs of this area, municipal wholesale customers became effective, subject to refund, r we will develop studied courses of action necessary to meet such needs. on September 11,1977. Numerous Our decisions will be based on hearings were conducted by the Chairman of the Board sound, reasoned business and Federal Energy Regulatory engineering experience, principles Commission ( FERC) durmg 1978, and practices. but no decision has yet been M // rendered by FERC. g/ ____ & As m, dicated m, a precedm, g para-graph concerning construction, the Approximately $61 million has raising of capital continues to be been expended prior to 1979 for one of our most vexing problems. air and water quality and other President In April 1978, the Company sold em-ironmental requirements. The
$25 million in first mortgage bonds; total presently estimated costs, in December, S4.5 million in including amounts already New Castle, Pennsylvania con mon stock was sold to its expended, amount to almost $99 51 reh 13,1979 parent Company, Ohio Edison: This million. Earnest efforts to comply total of $29.5 million, combined with valid environmental regulations with funds generated internally, will continue to be made: the was used to retire at maturity $1.0 impact of meeting the costs of such million first mortgage bonds (3c'c regulation will ultimately be Series) which became due Af ay 1, reflected in the Company's rate 1978, and fc,c the construction pro- schedules.
gram and improvement of existing facilities. The Company continues to face considerable litigation, some as a The Company's financial situa- result of our participation in the tion during most of the past year j int c nstruction of facilities affected our ratings in the bond through the CAPCO group. Details
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market. Stoody's reduced ratings on f these issues are discussed later in our first mortgage bonds from A to the report. Baa on April 7,1978. Standard & Poor's, however, apparently 1705 320 3
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1978 in Review . . . higher but for lengthy work in its history. Effective Septem-stoppages during the year in two of ber 1,1978 the $23.3 million the major industries in our service increase had a marked effect on all area. The lower commercial and retail rate classes, raising the average residential growth rates probably residential kilowatt-hour rate to resulted, at least in part, from 4.56 cents a kilowatt-hour, Revenues and Sales national conservation trends and compared to 4.03 cents a kilowatt-c nsumer c neerns with the rising hour in 197'T. Average annual use Despite the unusual combination price f energy. per residential customer increased of fierce winter weather and the 131 kilowatt hours, raising total national coal strike, the total average use to 7,679 kilowatt-hours kilowatt-hour sales were 4.1% Revenues from kilowatt hour for the year compared to 7,548
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higher than in 19,4 s. sales showed a decided increase. . kilowatt-hours in 1977. The average For the past several years a portion residential bill was $349.84, With the national coal strike of these revenues reflected the fuel compared to S304.13 in 1977. creating the problem of maintaining cost adjustment. This adjustment a constant supply of coal, the was applied to each kilowatt-hour A new system peak load was Company requested all classes of sold to reflect changes, up or down, established September 20, reaching customers to make conservative use in the cost of fuel used for genera- 552,000 kilowatts. of electricity during a period lasting tion. Effective July 1,1978, the from lat January through most of fuel cost adjustment was replaced
.\ larch. The coal supply problem by an energy rate by order of the Operating Expenses, Taxes and was coupled with power plant PUC. The energy rate includes all Interest problems created by the unusually fossil fuel costs, nuclear fuel costs, cold weather. purchased power energy costs, and Two unusualincidents. the failure net interchange energy sales and of a step-up transformer at the Nevertheless, residential kilowatt. purchases.On July 1,the Company, nuclear Baaver Valley Power hour sales rose 3.39; commercial in compliance with the energy rate Station and loss of Unit No. 7 at 1.4G; and industrial 5.49. Total order, rolled 95?c of these costs as the W. H. Sammis Plant, were maju kilowatt-hour sales reached 3.3 of July 31,1977 into the base rates, factors in increased operation and billion, a new high for the This caused a lower energy cost rate maintenance expenses during the Company. but a higher base rate cost for our year.
customers. The total bill did not While industrial kilowatt. hour change, however. The Beaver Valley Power Station sales showed a marked increase, was out of service for approximately they would probably have been As stated earlier the Company 5 months; the W. H. Sammis Plant was granted the largest rate increase Unit No. 7 was out of service
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-.-__3, sr "L 2 b 1D . E } Y D s*9 $ ) 12v ~ w d. . 1C IC ,-..,.7,C C 4 'i w (MILLIONS OF KILOWATT-HOURS) (MILLIONS OF DOLLARS) 4500 135 4000 120
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COMMERCIAL INDUSTRIAL e 1705 321
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' D""D *D'T we w .A. a approximately 4% months. The Marketing increased 127,060,191 or 4.1Fe over Company owns 17.5Fe of Beaver 1977 totals. Electric sales revenue Valley Unit No.1 and 20.8*'c of Dependability, supply and price at the same time increased 19.5Fo W. H. Sammis Unit No. 7. As a of energy are the critical areas of to $107.6 million. Annualsystem result of the loss of these units,it concern for our customers. These load factorincreased from 69.2Fe was necessary to operate less are the areas which require our to 71.0Fc efficient units and purchase addi. utmost efforts. tionai pows- Thus it is evident that the With the cost of new generating Company's marketing approach is These and other factors including facilities continuing to soar, the proving effective in the continuing the influence of continued inflation thrust of our marketing effort has effort to improve sales and restrain on all aspects of our coerations been to maximize utilization of our rising costs for both the customer increased operating exp=nses 20.9Fe. existing generation to the fullest and the Company. Every aspect of Total expenses were S7J.8 million extent possible. Our objective has marketing, with a variety of compared to S61.1 milli an in 1977. been to increase our customers' use programs, has as its primary goal These expenses per kilowatt hours of existing generatinr capacity by the improvement of load factor on sold were 2.27 cents as compared to scheduling newloads and shifting the system, through emphasis on 1.95 cents in 1977. existing loads off peak in order sound load management and both to reduce and to defer the need techniques. Total taxes increased to nearly forinvestment in additional generat-
$9.7 million for 1978 compared to ing capacity. One very effective program of S8.6 million in 1977. ,
many held during the year was a The increase this year in kilowatt. Commercial Industrial Executive Interest charges rose 17.0"c, hours produced added revenue with Energy 31anagement Conference, reaching S16.2 million, due princi- almost the same maximum system attended by 100 executives pally to the sale cf S25 million in demand. System demand increased representing industries throughout first mortgage bonds in April 1978. from 551.000 kilowatts to 552,000 our area. During this two. day kilowatts, while kilowatt-hours session a nationally known team of energy experts conducted a series
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shifting industrialloads to off peak use and the most effective methods
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produced in 1978 a shift of 2,817 g * ~ " s kilowatts of load to off-peak ( f , , periods, representing the equivalent
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m mdustrial load connected during 1978 totaled 18,873 kilowatts 3farketing representatives held a compared to 21.S62 kilowatts in y cariety of seminars covering all aspects 1977. The most significant single of energy management; this group is composed of representatives from area new load added during the year was ex by internat1onal bletals Reclamation
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? industries. At left. L. W. Stiller, senior
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second from left. was one of the Inmetco's operations added 8.000 q instructors during an energy workshop kilowatts. for tecchers. (
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Another effective energy program tion and insulation, utilizing on so called "new" rate concepts. deals with space heating. for both information provided by our repre- The PCC held generic hearings on industrial and commercial applica- sentatives. Heat pump applications those new concepts and on rate tions. Slany kinds of small commer- continue to grow in industrial and design principles in general. The cial establishments and industrial commercial offices and buildings, as Commission's staff report praised office buildings, mainly in new well as in residential installations. the Company as the most construction, are continuing the progressive electric utility in the trend to electric heating. During Our close working relationships Commonwealth, for it has offered 1978 a number of such new struc- with architects and builders and our the essence of some of these "new" tures installed electric comfort efforts to provide these groups with rate concepts to the majority of its heating and 16 of these met the basic information on energy and customers for many years. The Company's standards for construc- applications have been among the Company is the only utility in principal reasons for this growth in Pennsylvania to offer residential electric heating installations. load meter rates, which permits the
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l An Architects and Engineers monthly bilhng by using the load j' Conference, an Institutional and
) meter. Off peak residential water l Industrial Plant Engineering heating rates are also part of our I i Conference, workshop sessions with rate structure. In addition, the I
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$ i ing technical material for industrial its commercial and industrial i plant engineers on electric process customers.
heating principles, were among the
% seminars and conferences during The staff of the PCC endorsed the year. In every instance we load meters as "the best bet to stressed the importance of energy promote efficient use of existing management and the advantages of capacity", coming to this conclusion shifting loads to off-peak use. afteran 18 month study of a variety n _
E of rate structures. A senior rate Alany discussions in recent years analyst of the Commission noted throughout the nation have centered the " amazing load performance" of
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r3.w . ,, y. , .,._m y., j A major Pittsburgh-based contractor continues to expand a project in the Company's Zelienople District, right, which will ultimately hace about 323 all-electric homes. At left, a solar home was completed in New Castle, one of 67 in the nation sponsored by the National Aeronautics and Space Administration. This sing le family dwelling has a heat pu np to augment the solar equipment. R. A. Beck residential representative, checks heat pump installation.
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' D the Company's residential many home builders to supervise near Sandy Lake, PA. The 31 customers, approximately 75c'e of insulation methods. Contact was teachers attending judged the work-whom have load meters, and made with all new homeowners shop excellent in providing valuable described the Company's residential installing electric water heaters to and useful energy information for load curve as " totally flat" for the encourage the use of time clocks their own classroom use. Three of past six years. Use of these meters for off-peak water heating. These the instructors were from the has produced solid results in the clocks are set to operate the water Company's residential marketing varied programs seeking to restrain heater pnncipally during off-peak department. The workshop was peak system demand. hours and nearly 19,400 such sponsored by the Pennsylvania clocks are at present being utilized Electrie Association, and the Two major educational programs on our system. Company was host. which emphasize proper energy management in the home and in As mentioned earlier in this School programs have long been home' construction are presently in section, heat pump installations and continue to be an excellent operation. The " Easy on Energy" continue to grow in popularity in avenue to spread useful energy program began in 1977; the the residential sector. At the close informatiori among students and
" National Energy Watch" program of 1977,944 of all new residential their families. The Company's began in 1978. While the " Easy on central electric forced-air heating home economics representatives Energy" program is directed more systems installed were heat pumps. presented 1,180 programs in class-toward proper construction and This trend continued in 1978,322 rooms and in public meetings insulation techniques and the heat pump installations being made. during the year. Group and indivi- " National Energy Watch" focuses Heat pump installations increased dual contacts were made by agri-pnmarily on the home owner's 16.6% over 1977. There are now cultural representatives among area energy usage, both have the 2,793 residences with total electric farmers to emphasize the common goal of proper energy space heating, a 253 growth over importance of energy management management and conservation. 1977. and benefits of shifting loads to off-During 1978,46 builders partici- peak hours.
pated in the construction of " Easy Other programs reach all schools on Energy" homes. and many teachers throughout our Area development activities are service area. During the past often interpreted solely as efforts Last year was a very active one in summer a three-day Residential to attract new industries and single family home construction. Heating and Cooling Workshop was business. In reality, retention and and residential and agricultural held for vocational teachers at the expansion of existing industry and representatives worked closely with .\1cKeever Environmental Center business are equally important. This past year was one of the most active in several years for industrial
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; . ;L J ---- - _1 Kennedy Square in New Castle was repaved and relighted as part of the city's redevelopment program. High pressure sodium vapor ligh ting atop slender spun alummum poles adds to the attractiveness of the area.
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'O g For years the Company has uti- Employees receive monthly messages appear regularly in news-lized many avenues of communi- issues of a Company magazine papers and are heard on radio cation. Regular news stories, news- which features a variety of energy stations throughout our service area.
paper and radio communications, information. A quarterly publica-information booklets, motion ' tion " Profile" addresses many of Our commercial, industrial, resi-picture films, displays and plant the problems facing the Company dential and agricultural representa-tours provide a continuing flow of and the electric industry. Not only tives are continually involved in the energy information to all segments is it sent to employees, it is also energy dialogue. This past year, to of the public. mailed to a selected list of opinion augment their efforts, an employee leaders in the various communities Speakers Bureau was organized to we serve. provide informative talks to organi-zations seeking programs. While at
// Twice a year Company President present a relatively new organization
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Ray E. Semmler presents special within the Company,it's expected
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employees. This affords employees capably expand our contacts with the opportunity to hear about many orgarJzations and individuals Company activities directly from in our area. top management and to ask questions on any subject relating to In an effort to emphasize the Company operations, costs of today's generating facilities and their pollution control equip-Such information, both for the ment, the Company has expanded public and employees, covers a its program of power plant tours, wide area of our operations. In particularly at the massive Bruce
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recent years the major focus in .\lansfield Plant. Since these tours newspaper and radio communica- began about three years ago, more tions has been directed to informa- than 10,000 have visited the plant. _ tion about electric service, Company Litenlly without exception every _ operations and energy conservation visitor has been visibly impressed, and proper energy use. Such both by the plant's size and the
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the .\fcDowell Substation; moving a tall 4W ,. t weat the Shenang Substauon. L 4. 7 c*- 10 1705 323
a pollution control equipment Coal-fired project at the New Castle Power required by today's standards. Bruce Af ansfield No.1. . . . 4.2 c'e Plant. Total 1978 expenditures for Bruce Af ansfield No. 2. . . 6.8c'c property additions and improve-During the past year the Bruce 51ansfield No. 3. . . 6.28?e ents were S55.0 million, compared Company formed a Consumers W. H. Sammis No. 7 .. 20.8Pc to $63.2 million in 19, ,. Information Group consisting of 11 citizens representing education and N' uclear Expenditures of $49.3 million civic groups, unions and senior have been authorized by the board citizens.11eeting once a month with Beaver Valley .N.o . 1. . . 17.5"e of directors for 1979, subject to Company representatives, the Davis Besse No. 2 . 6.28Fe review by the board, with S36.3 Consumer Group discussions reach Davis Besse No. 3 . . . 6.28"e million of the total allocated for into many areas of concern to citi- Erie Unit No.1 .. 6.28"e power plant construction. The shift zens which might otherwise go Erie Unit No. 2 . ..... 6.2S"e of emphasis from coal. fired plants unnoticed. Perry Unit No.1 6.289 to nuclear is evident when it is Perry Unit No. 2. ... . 6.28"e noted that S25.7 million of the S3G.3 million is to be utilized in Construction In Stay the air quality control 1979 for nuclear plant construction, project at the New Castle Power There are six nuclear units in various Plant was completed to the extent stages of construction at several Since the CAPCO construction that all five generating units were Ohio sites. program began, four coal. fired in operation utilizing the new units and two nuclear units have controls. In 1978 S7.0 million was The balance of the $49.3 million been completed. After Bruce expended on this $39.7 million for 1979 is to be used for trans-
.\!ansfield Unit No. 3 is completed, project. mission and distnbution lines, sub-all presently planned future CAPCO stations, nuclear fuel and general plant construction will be nuclear. The bulk of expenditures during plant improvements.
Bruce Alansfield Unit No. 3 is this past year, S44.2 million, were scheduled for commercial operation for construction of electric produc-in October 19S0. tion facilities at the several power Environmental Matters The Company shares ownership piants being built in the CAPCO in CAPCO units as follows: program and the air quality control The Company intends to meet its obligations and to endeavor to T '
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comply with all applicable valid government regulations with regard to environmental controls. As mentioned previously, the presently tsfM [" . estimated total amount of environ-mental expenditures is almost $99 4 1 l million. Through its participation
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A i-berLi % U ' M.e5 Several legal proceedings are underway and various negotiations are continuing with the environ-mental authorities to try to arnve at reasonable arrangements that will have the least economic impact on the Company and its customers' electric bills. The final determina. Rotts of transmisswn totters are outlined against a wintry evening sky. These are tions of many oi these problems .m.000-colt lines carryme energy from the Bruce .Vansfield Plant for and the financial eifeet on the distnbution to the five CAPCO companies. Company cannot be anticipated at this time. 1705 326 11
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Even though the Company has The Company developed studies The proceeding brought in the spent approximately $. 39 million at which indicate that the current United States District Court for the the New Castle Power Plant to emission standards for SOo are Southern District of Ohio, Eastern comply with a plan approved by more strict than necessary~to meet Division, asks the District Court the court, the state Department of the federal ambient air (health) under the Clean Air Act to assess Environmental Resources (DER) standards. The Company has, there- " appropriate" but unspecified civil has indicated that it may require fore, requested that the DER adopt penalties for allegedly continuing the Company to install a flue gas a less stringent emission standard for violations of particulate emission desulfurization system at the plant. SOo which would enable the regulations; to establish a schedule Coiiipany to meet the emission for achieving full compliance with standards by burning Pennsylvania such regulations "as expeditiously
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/ low sulfur coal at the plant. as practicable"; to order reduction
/ of particulate emissions to the The Company's New Castle Power " greatest extent practicable" until Plant has been cited by the full compliance is achieved pursuant
- Environmental Protection Agency to such schedule; and to assess s (EPA) with respect to particulate " appropriate" but unspecified civil
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and sulfur dioxide emission viola- penalties for any periods in which
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tions and the Company has had a there is a failure to meet such j conference with the EPA on these schedule or to reduce particulate
- issues. There has been no response emissions to the " greatest extent i
by the EPA in connection with practicable" pending full I matters raised at the conference. compliance. On December 18,1978, the Pursuant to Sec.125 of the Company was served with an Clean Air Act, the EPA has given
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amended complaint joining it in a notice that it may prohibit the up
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legal proceeding begun August 2, of out-of-state coal to comply with 1978, by the federal government sulfur dioxide emission limitations
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against Duquesne Light Company at W. H. Sammis Unit No. 7. If this and Ohio Edison Company as co- is done, the total presently owners of W.H.Sammis Unit No.7. estimated amounts of environment-
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1705 327 12
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. D**D *D'T oo o 1 m related expense by the Company future, the Company may be Actions were filed against the willincrease by approximately required to install off stream CAPCO companies in July 1977 by
$26 million. cooling. the Borough of Shippingport where the Bruce Stan:Feld Plant and the The Clean Air Act Amendments The Ohio EPA has issued a Beaver Valley Power Station are of 1977 include, among other discharge permit for the W. H. located. These actions seek to alter things, provisions requiring the Sammis Plant contaming conditions operation c: these two plants and imposition of substantial non- which would require thu construc- to obtain damages because of compliance penalties for failure to tion of cooling towers. A request for alleged operational malfunctions of comply with applicable emission a variance which would eliminate the the Bruce Stansfield Plant's wet limits after July 1,1979, with need for cooling towers is pending scrubber system and Beaver Valley's certain exceptions. If the proposed with the Ohio EPA. reanor system. In addition,39 changes and schedules submitted individual plaintiffs filed an action for the New Castle Power Plant and seeking monetary relief in an W. H. Sammis Unit No. 7 are not unspecified amount for damage to accepted by the environmental Litigation their property as claimed to be a agencies substantialnoncompliance result of the same alleged opera-penalties may result. In addition, the In 1975, the City of Cleveland tional malfunctions.
Company could be forced to shut filed a complaint in the Federal down those plants that do not District court against the CAPCO Two of the Company's municipal comply. The effect of any such member companies alleging that the resale customers, the Boroughs of shutdown on the costs to and opera- defendants have engaged in " unlaw. Ellwood City and Grove City, filed tions of the Company is not fut combinations and conspiracies a complaint October 3,1977 presently determinable, but it could unreasonably to restrain and against the Company, alleging that require purchases of power at prices monopolize interstate trade and the Company violated the antitrust significantly greater than the commerce"in various markets for laws by 1a) preventing plaintiffs Company's cost of generation. electric power. The City of from gaining access to alternative Cleveland claims treble damages for sources of power,(b) refusals to The Company has pending a the alleged misconduct. Trial was deal with the plaintiffs, (c) denial request for a variance concerning set for February 5,1979 but has f access by municipal electric thermal discharge at its New Castle been continued. No new trial date systems to nuclear generatmg facih,- Power Plant. At some time in the has been set. ties ow ed b the C DCO ,, electric power and energy to munic-ipal systems, (e) initiating rate p aint fs at ere co t ie t ..y . O P* e.. '
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L Court on January 4,1979, granted Petsonn21 granting of wage and salary increases the Company's motion to dismiss in September brought total wages claims (a) through (d) above and and salaries and cost of fringe bene-stayed the action relating to (e) Constantly pursuing avenues to fits to $20.3 million, compared to pending resolution of the control costs, the Company has for $17.3 million in 1977. This is an Company's rate proceeding before the past several years carefully increase of 17.3?c. Cost of fringe FERC. Discovery is proceeding as restricted its hiring of new benefits reached $513 per to the claim referred to in (f). employees. employee per month. Since 1974, however, employ- Annual salary increases and ment rolls have shown a steady improvements in fringe benefits increase due to the needs at the were granted those employees not Bruce .\tansfield Plant, where new represented by the union. generating units have gone into operation in recent years. A new two year contract was signed with Local No.140 of the With two generating units now in Utility Workers Union of America
, operation and Unit No. 3 scheduled ( AFL-CIO), providing for a 7.25c'e for operation in Octobu 1980, the wage increase and improvement of
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By the end of 1978 there was a 1979. On .\tarch 1,1980 an addi-s 'N [.*D , "j total of 1,335 employees compared tional 2Pc wage increase will become effective.
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C. L. Burkett and D. R. Sheffey of New Castle Customers Accounting compare - the new. larger customer bill form with postcard bill. Postcard billing was in use . , .
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for many years; Public Utility Commission now requires larger bill with variety ofinformation for customer. M. A. Biggins. right, home economist, and teacher l examine new edition of Company's recipe and energy management book which is distnbuted throughout all schools. 14 1705 329
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o ! . U kite a International Brotherhood of to be audited. While final results of Pennsylvania Electric Association, Electrical Workers ( AFL-CIO) this audit are not known at this the electric utility trade association providing for a 7.5"e wage increase time, preliminary reports are in Pennsylvania. effective .\tay 15,1978 and changes generally favorable as to the effee-in fringe benefits effective tiveness of the Company's Employee contributions to the August 15,1978 and a 6?c wage operations. annual United Way campaigns in increase effective August 15,1979. communities throughout our On February 15,1980 an additional Efforts toward continued service area have been markedly 2"e wage increase will become improvement in accident prevention high, particularly in recent years. effective. are constant anddiligent throughout This past year their efforts placed the Company. During the annual the Company among the leaders in All employees are covered by a meeting of the Pennsylvania virtually every community. single noncontributory trusteed Electric Association in September, pension plan. At the end of the year the Company received a safety 226 former employees and provi- award for achieving the best results sional payees or surviving spouses in prevention of disabling electric Shareholders of deceased employees were shock and burn accidents during receiving retirement incomes the year 1978 among member Virtually allbusiness and industry through the plan. Twenty one companies having more than one today faces the challenge not only employees retired during the year. million man hours exposure to continue to provide reasonable annually. This was the fifth consec- dividends to its shareholders, but During this past year the Pennsyl. utive year employees had worked also to successfully combat those vania State Legislature required without having a single electrical groups in Amencan society who that all utilities in the state be contact accident. would prevent economic growth. subjected to management audits. .\lany of these groups are idealists Because of its relatively smaller size During 1978, Walter K. Conover, who purport to represent the public the Company was selected by the vice president, served with interest. Whom, in fact, do such PCC to be the first electric utility distinction as chairman of the groups represent? They represent a narrow, anti-growth, anti business, anti-free enterprise philosophy, inasmuch as they tolerate no deviation from their point of view and refuse to consider the adverse
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effects that must result from the programs they promote. This is not representing the public interest, this is dictating to the public,it is not
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1705 330 15
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Thisis particularly the case in the society in an authoritarian mold in energy industries, which find them- pursuit of their narrow no-growth q selves repeatedly attacked by policies surely cannot truthfully F zealots who use every legal, adminis- claim they have the nation's Dj ,3.3[
D D D J, h trative and political approach to interest at heart. Forceful, forth. M6 ' block or delay vitally needed right comments to representatives energy production facilities. Their of government at alllevels concern-activities represent an attack on the ing the actions of these zealots nation's entire economic system, should be a continuing effort by because energy is the comerstone every shareholder.
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important but in itself insufficient, held by 3,515 shareholders. hf 4 . O E '. ^ . g <J that there is a genuine need for There were a total of 599,049
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f ;^rl.l l ? Presenting a Pennsylvania Electric Association safety gd ~ $. = award is W. K. Conocer, left, vice president, who served A
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Pennsylvania Power Company - Operating Statistics _. . _ . _ _ , 1918 1977 1976 1975 1974 1973 SALES IN KILOWATT HOURS (MILLIONS) Residential * . . . . . . . . . . . ..... .... .. 814.7 788.3 750.5 717.9 699.6 681.0 C o mm e rcial . . . . . . . . . . . . . . . . . . . . . . . . . 494.5 487.8 467.6 442.4 414.5 417.6 I nd ust ria l . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,816.9 1,724.5 1,704.5 1,541.0 1,832.2 1,879.5 A ll O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.0 123.4 112.0 104.8 105.3 105.4 To tal. . . . . . . . . . . . . . . . 3.251.1 3,124.0 3.034.6 2,806.1 3.051.6 3.083J REVENUES FROM SALES (THOUSANDS) Residential * . . ........ . ... ... . S37,113 S31,763 $30,643 S29,967 $24,357 $18,929 Commercial . ........... .......... 20,320 17,659 17,202 17,000 13,513 10,777 Industrial. . . . . . . . . . . . ...... ....... 45,201 37,085 37,786 36,547 30,844 21,921 All 0 the r . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,994 3,565 2,955 2,465 2,500 1,574 To tal. . . . . . . . . . . . . . . . $107,628 $90,062 $88,586 $85,979 $71,214 $53,201 CUSTOMERS SERVED AT END OF YEAR R eside n tial' . . . . . . . . . . . . . . . . . . . . . . . . . 107,126 105,197 103,725 101,924 100,545 99,001 Commercial , . . . ... .... . ......... 12,647 12,317 12,090 11,800 11,629 11,414 Industrial. . . . ........ .. ....... 133 133 135 133 133 139 All Other. . . .....'.... . . ....... 113 111 113 114 115 114 To tal. . . . . . . . . . . . . . . . 120.019 117,758 116,063 113,971 112,422 110,63 RESIDENTIAL
- CUSTOMER AVERAGES Average Kwh Used per R es.* Custo me r. . . . . . . . . . . . . . . . . . . . . 7,679 7.548 7,301 7,099 7.018 6,963 Average Price Per Kwh-R es.* (ce nts) . . . . . . . . . . . . . . . . . . . . . . 4.56 4.03 4.08 4.17 3.48 2.78 KILOWATT HOU RS GENER ATED (mi!! ions). . ........... 3,320.1 3,550.6 2,779.3 2,375.0 2,620.5 2,830.9 KILOWATT.HO U RS PU RCH ASED AND INTERCH ANGED (millions) . . .. . .. 116.7 (205.8) 474.6 640.8 607.3 430.5 PEAK LOAD (kilowatts) . . . . . ........ . 552,000 551,000 526,000 495,162 498,199 516,213
- Includes farm customers 1705 332 .
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Pennsylvania Po$ver Company ~ Management Discussion and Analysis Opereting Revenues- conimercial operation of Bruce Other income (Net)- Total operstmg revenues Mansfield Umt No. 2 in October The decrease for 1977 of increased $11,260,000 and 1977, thus reflecting a full year of $7,749,000 is due primanly to the
$18.275,000 dunng the years 1977 expenses. Purchased and inter- classification from other income to and 1978. The 1977 increase changed power increased due to the net interest charges of the primarily reflects increased rentals Company's buy / sell position as a allowance for borrowed funds used from electric property as a result of member of CAPCO caused by dunng construction, as presenbed new energy sales agreements with extended outages of various by the Federal Energy Regulatory other CAFCO participants of a CAPCO units, which has put the Commission.The decrease m 1978 portion of the Company's owner- Company in a " Net Receipt of $542.000 results pnneipally from ship mterest in CAPCO generating position. the decrease in the allowance for umts. Also in 1977, the Company funds used dunng construction, was granted a rate increase which In 1977, mamtenance expenses reflecting the placing m commercial was made retroactive to May 1976. increased due to major repairs to operation of Bruce Mansfield Unit The portion of the increase appli. the No. 3 botler and the rebuilding No. 2 in October 1977,although the cable to 1976 was reflected in of the exciter for No. 5 unit at the overall rate for computing the revenues for 1977. The 1978 New Castle Power Plant, along allowance was increased slightly.
increase was due to an increase in with forced outages of other units energy cost revenues of 28.54 and at vanous times dunng the year. Net interest Chsges-an mcrease m kilowatt-hour sales of Maintenance expenses mcreased in The 1977 decrease of $1.032,000 4.11. In addition, the merease in 1978 due to replacement of a faded is pnncipally due to the 1977 classi-retail base rates of 12.6% resulted step-up transformer at Beaver fication of the allowance for from the annual mcrease of 40% in Valley Unit No.1, replacement of borrowed funds used durmg base rates granted by the Pennsyl. a generator at Sammis Umt No. 7, construction, as desenbed above. sama Public Utility Commission, along with forced and scheduled The merease in 1978 of effective September 1,1978, outages of vanous units at the New $3,256,000 reflects the sale of first Mumc: pal resale revenues increased Castle Power Plant dunng the year. mortgage bonds m Apnl 1978, and 56.4% as a result of implementing The forced outages at Beaver Valley a decrease in allowance for in September 1977 a proposed Unit No. I and W.11. Sammis Umt borrowed funds used dunng rate mcrease, subject to refund, No. 7 together entailed nearly a construction, a credit amount, due rmding a final decision by the year of downtime. Escalating wage to the placing in commercial opera-Federal Energy Regu'Mory and fringe benefits, increased tion of Bruce Mansfield Umt No. 2 Commission. Surcharge revenues material and other costs also con- in October 1977. increased due to mereased kilowatt. tnbuted to the overall nse in the hour sales and the increase in retat! level of expenses. Preferred Stock Dividend Requirements-base rates. Preferred stock dividend require-Depreciation- ments increased $247,000 for 1977 The provision for depreciation and $787,000 for 1978 resulting Operating and Maintenance Expenses- increased $3,312,000 for the year from the issuance of additional T1.e merease in operating and 1977 due to the plaemg m semce preferred stock in December 1977. maintenance expenses of f CAPCO units. The meresse of
$1,608,000 in 1977 is pnncipally $1,233,000 for the year 1973 was Net income for Com non Stock-due to mereased cost of fuel, due to the placing m semce of The decrease of $1,255,000 for mamtenance, and operatmg Bruce Mansfield Umt No. 2 in 1977 reflects a decrease m total expenses as a result of a full year's October 1977 and other additional allowance for funds used durmg commercial operation of Bruce property. The increase in 1978 was construction and an increase in Mansfield Umt No. I and Beaver partially offset by the adoption of depreciation and maintenance Valley Unit No. I along with the reduced depreciation rates expenses, as a result of the new October 1977 commercial opera, approved by the Commission. CAPCO units bemg placed into tion of Bruce Mansfield Unit No. 2, commercial operation, and the offsat by increased sales of energy Tax es. other matters mentioned above.
to other CAPCO participants. General taxes increased $479,000 The decrease of $1,311,000 for for the year 1977 and $1,199,000 1978 results from an increase in The merease m 1978 of for the year 1978. Increases were depreciation expense, resulting
$12.739,000 reflects an increase of reflected in both years for gross from additional property placed in $2.89 m cost per ton of coal receipts taxes as a result of higher semce, the overall effect of consumed which is partially offset revenues, additions to property allowance for funds n 3ed dunng by a s!!ght decrease m tons burned have resulted m higher property construction, the incre ue m indebt-and a 5.7"e decrease m kilowatt. taxes and employment taxes have edness, the extended outages of hours generated from coal fired increased due to higher tax rates two major units and other items units. Kilowatt. hours generated and wages. discussed above.
from Beaver Valley Umt No.1 inuclearp decreased 7.4%, whde Changes m the provision for kilowatt. hours generated from oil income taxes for the years 1977 combustion uruta increased 43.1%. and 1978 are set forth in Note 1 of Also contnbutmg to the increase in Notes to the Financial Statements. operatmg costs was the placmg m 18
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, . Pennsylvania Power Company Financial Statistics _ 1978 1977 1976 1975 1974 1973 Thousands of Dollars Operating Revenues. . . . . . . . . . . . . . . . . $119,118 $100,843 S89.583 $87,212 $72,510 $53,742 Operating and Maintenance Expenses . . . . 73,807 61,068 59,400 56,846 45,016 31,204 Depreciation. . . . ............... 11,887 10,654 7,342 5,984 5,856 5,528 Taxes: Federal and State income Currently Payable . . ....... . (142) (979) (1.077) 5,713 2,472 2,513 Deferred (Net) . . . . . ... .. 3.353 3,456 535 (126) 2,704 191 Investment Tax Credits (Net) . . . . . (1,458) (554) 1,423 701 23R 56 G e n e ra l . . . . . . . . . . . . . . . . . . . . 7,916 6,717 6,238 5.817 4,877 4,269 Operating income . . . . . . . . . . . . . . . . . 23,755 20,481 15,722 12,277 11,347 9,981 0ther income (Net) . ..... . ..... 4,810 5,352 13,101 12,043 8,613 5,359 Net Interest Charges. . . .. 13.578 10,322 12.304 8,941 7,484 6,694 Income Before Cumulative Effect of a Change in Accounting Method . . . . 14,987 15,511 16.519 15,385 12,476 8,646 Cumulative Effeet to December 31,1973 of Recording Metered but Unbilled Revenues (Net of related income taxes of $311,000) - - - - 279 - Net income ..... . ....... ... 14,987 15,511 16,519 15,385 12.755 8,646 Preferred Stock Dividend Requirements. . 4.660 3.873 3,626 3,035 2.120 1,450 Net income for Common Stock . .... . S_ 10.327 S 11.638 S12,893 $12,350 $10,635 S 7,196 Common Stock Dividends. ... . . S 5.452 S 7,220 $ 8,470 S10.008 S 3,852 S 5,742 Utility Plant. . .
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. ... .. 5506,374 S454,522 S409,062 S350,123 S307,306 S259,440 Depreciation Reserve . . .. .. ... . 90.742 81,542 72,058 65,680 60,702 55,954
$415,632 $372.980 $337.004 S284.443 S246.604 $203.486 CAPITAllZATION Long-Term Debt . . .............. $202,183 S180,385 S167,813 S135,075 $117,349 $105,568 Preferred Stock. . . . . . . . . .. ... . 59,947 59,947 49,947 41,947 33,947 25,940 Common Stock and Retained Earnings . . 150,128 140,939 118,554 106,118 98,341 75,462 Total. . . ........ .. S412,258 S381,271 S336,314 S283,140 $249.637 $206.970 CAPITALIZATION RATIOS Long-Terrr. Debt . . . .. ..... . . 49.1% 47.3 % 49.9% 47.7% 47.0% 5 l.0%
Preferred Stock. . . . . . .. ..... 14.5 15.7 14.9 14.8 13.6 12.5 Common Stock and Retained Earnings . . 36.4 37.0 35.2 37.5 39.4 36.5 Ef fective January 1,1974, the Company adopted the policy of deferring certain increased fuel and energy costs incurred and estimated to be billable in succeeding periods in accordance with its fuel adjustment and energy clauses. Prior to 1974, the effect of not following this account:ng practice was not material (See Note 1 of Notes to Financial Statements). Also in 1974, the Company modified its method of recording revenue on a billed basis to include residential and commercici service revenue relating to meters read through the end of the month. The pro forma effect of these changes in accounting to years prior to 1974 has not been reflected above since the effect would not be material. 1705 334 m
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- Balance Sheets: eioecemeera,. ,978 ema ,977
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Assets increase or 1978 1977 Decrease Thousands of Dollars Utility Plant (Note 1): In service, at original cost . . ....... .. .. . . . $414,657 $386,249 +$ 28,408 Less-Accumulated provision for depreciation. . 90.742 81,542 + 9.200 323.915 304,707 + 19,208 Construction work in progress . 90,126 66.811 + 23,315 Nuclear fuel in process . 1,591 1,462 + 129 415,632 372,980 + 42,652 Other Property and Investments: Construction funds bald la esert=>. including accrued interest. . 2,200 7,740 - 5,540 Other, at cost - . .. . . 313 313 - 2,513 8.053 - 5,540_ Current Assets: Cash. . . 795 1,049 - 254 R eceivaoles-Customers (less accumulated provision for uncollectable accounts of $160,000 and $120,000, respectively). 11,221 7.8G8 + 3,353 Parent Company , , 10,373 4,378 + 5.995 Other 9,228 5,360 + 3,868 Materials and supplies, at average cost-Fuel, . 8,138 8,389 - 251 Other . . . . . 3,323 2,456 + 867 Prepayments. . . . . 484 397 + 87 43,562 29.897 + 13,665 Deferred Debits: Deferred fuel adjustment and energy costs (Note 1) . . 4,717 3,541 + 1,176 Other . . .. . . 7,423 4,101 + 3,322 12,140 7,642 + 4.498 S473.847 $418.572 +S 55.275 The accompanying Notes to Financial Statements are an integral part of these balanca sheets. 1705 335 m -
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_ Capitalization and Liabilities increase or 1978 1977 Decrease _ _ _ . . Thousands of Dollars Capitalization: (See accompanying statements) Common stockholder's equity . . . . . . . . . . . . . . . . . $150,128 $140,939 +$ 9,189 Preferred stock . . . . . . . .. ... . . 59,947 59,947 - Total stockholders' equity. . 210.075 200,886 + 9,189 Long-term debt. 202,183 180,385 + 21.798 Total capitalization . 412,258 381.271 + 30.987 Current Liabilities: Current maturities of long-te m debt. 3,500 1,000 + 2,500 Notes payable to banks (Note 5) . . . 6,500 - + 6,500 Accounts payab!e-Parent Company . . . . . . . 1,971 2,068 - 97 Other . .. .. . . . ... .. . .. . . 23,362 10,534 + 12,828 Accrued taxes. . . 3.329 3.689 - 360 Accrued interest . . . . . 3,219 2,713 + 506 Dividends declared on preferred stock. . . . . 934 728 + 206 Miscellaneous . 1,872 2.228 - 356 44,687 22,960 + 21,727 Deferred Credits: . Accumulated deferred income taxes (Note 1) . 9,853 7,891 + 1,962 Accumulated deferred investment tax credits (Note 1) . 2,608 4,066 - 1,458 Other . . . . . . . 4,441 2,384 + 2.057 16,902 14.341 + 2,561 Commitments, Guarantees and Contingencies (Notes 2. 3 and 6)
$473.847 $418,572 +$ 55.275 The accompanying Notes to Financial Statements are an integral part of these balance sheets.
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"' STATEMENTS OFTINCOME: ~- ~
AND RETAINED EARNINGS: For the Year:s Ended December 31,1978 and 1977 f
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Increase or 1978 1977 Decrease Thousands of Dollars Electric Operating Revenues (Note 1) . $119,118 $100.843 +$ 13.275 Operating Expenses and Taxes: Operation-Cost of fuel (Note 1) . 38,605 35,092 + 3,516 Purchased and interchanged power, net (Note 1) . 3 134 (1,052) + 4,186 Other operating expenses . . . . . . . . . . . . . . . . .. .. 19,483 16,314 + 3,169 Total operation. . . . . . . . . . . . . . . . .. .. 61,225 50,354 + 10,871 Maintenance. . . . . . . . 12,582 10,714 + 1,868 Provision for depreciation (Note 1). 11.887 10,654 + 1,233 General taxes . 7,916 6,717 + 1,199 Income taxes (Note 1) . 1,753 1,923 - 170 Total operating expenses and taxes. 95.363 80,362 + 15.001 Operating income . 23,755 20.481 + 3.274 Other incorne and Deduc' ions: Allowance for equity funds used durmg construction (Note 1) . 4,592 5,108 - 516 Misce!!aneous, net . 419 470 - 51 Income taxes (Note 1) . (201) (226) + 25 Total other income and deductions. 4.810 5,352 - 542 Total Income , 28,565 25.833 - 2,732 Interest Charges: Interest on long-term debt. 15,292 12,978 + 2,314 Allowance for borroWec funds used during construction (Note 1). (2,613) (3.522) + 909 Other 899 866 + 33 Net interest charges . 13.578 10.322 + 3.256 Net income . . . .. . .. . 14,987 15,511 - 524 Preferred Stock, Dividend Requirements. ... 4.660 3,873 + 787 Net income for Common Stock . $ 10,327 $ i1,638 ,S 1.311 Retained Earnings-Balance at beginning of year . S 28,139 $ 23,754 +$ 4.386 Net income for common stock. 10,327 11,638 - 1,311 Less-Dividends on common stock . 5,452 7,220 - 1,768 Preferred stock dividends declared jn excess of requirements. 174 - + 174 Capital stock issuance expense. 12 33 - 21 Retained Earnings-Balance at end of year . S 32.828 $ 28,139 +S 4.689 The accompanying Notes to Financial Statements are an integral part of these statements.
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Pennsylvania ' Power, Company ' Statements of Capitalization: at oecember 31,1978 and 1977 1978 1977 Thousands of Dollars Common stockholder's equity (Note 4): Common stock, $30 par value. authorized 4,800,000 shares-outstanding 3,910,000 and 3,760,000 shares, respectively . . . ... ... .. . .. $117,300 $112,800 Retained earnings (of which $13,124,000 is not available for payment of cash dividends on common stock as provided under the Company's indenture) .. . 32,828 28,139 Total common stockholder's equity . .. 150,128 36.4% 140,939 37.0 % Preferred stock (Note 4): Cumulative, $100 par value-Authorized-740,000 shares issuable in series-Number Aggregate of Shares Present Presently R edemp-Outstanding tion Value Thouwnds 4.24% -4.64 % 141,049 S14,614 14,105 14,105 7.64% 8.24%. 218,000 23,429 21,800 21.800 8.48% -11.00%. . 240,000 26,457 24,000 24,000 Premium . - - 42 42 599.049 $64,500 Total pref-rred stock . 59,947 14.5 59.947 15.7 Total stockholders' equity. 210.075 50.9 200.886 52.7 Long-term deot (Note 4): First mortgage bonds-2 3/4% Series due 1980 3,000 3,000 9-5/8% Series due 1981 5,000 5,000 31/4% Series due 1982 . 5,805 5,805 9-1/2% Series due 1985 25.000 25,000 4-3/8% 9-1/4% Series due 1992 through 2000. 48,000 48,000 7-5/8% 1/2% Series due 2001 through 2008. 74,000 49,000 Total first mortgage bonds 160.805 135,805 Secured notes and obligation-Pollution control-1973 Series A, average interest ra'e 5.75%, due 1984 through 2003. . . . . . 3,500 3,500 1974 8-3/8% Series A and 8, due 1990 through 2004. 6,547 6,547 1976 7 7/8% - 8% Series A and D,due 1992 through 2006. . . .. 20,000 20,000 1977 4 3/4% Series E, due 1979. - 3,500 1977 6-3/4% Series 8. due 1998 through 2007 , 10,600 10,600 1978 7.30% obligation, due 1988 through 2003 314 - 40.961 44,147 1976 7.90% Environmental Note,due 1992 through 2001. 1,000 1,000 Tote secured notes ard obligation , 41.961 45.147 Net unamortired premium (discount) on debt. (583) (567) Total long-term debt . 202.183 49.1 180.385 47.3 Total capitalization (Note 6) . . . S412.258 100.0% S381.271 100.0 % The accompanying Notes to Financial Statements are an integral part of these statements. 1./05 338 23
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. for Gross Property Additions: Forin. Years Ended December 31,1978 and 1977u 1978 1917 Thousands of Dollars Sources of Funds:
Net income .. .... . . . .... . . .. , S 14,987 $ 15,511 Less-Dividends on common stock , . . . .. ... .... . . . 5,452 7,220 Dividends on preferred stock , . . 4,834 3.873 4,701 4,418 Principal non-cash items-Depreciation and amortizatien-Per statements of income . . . . . . . . . . . . .......... . . .... 11,887 10,654 Charged to other accounts. . . . . . . . . . . . . . . . .......... . ..... 199 234 Deferred income taxes-net . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 2,801 3,359 investment tax credits-net . .. . (',458) (554) Allowance for equity funds used during construction . (4,592) (5,108) Deferred fuel adjustment and energy costs, net of deferred income taxes . (624) (85) Tc., tai funds from operations 12,914 12.918 Proceeds from issuance of-Common stock , 4,500 18,000 Preferred stock . . .
- 10,000 First mortgage bonds . 25,000 -
Secured notes and obligation . . 314 14,100 Increase (decrease) in notes payable to banks . . . 6,500 (10,500) 36,314 31.600 Payment at maturity of long-term debt . . (1,000) - Proceeds from sale of utility property (Note 1) . - 16,712 Construction funds held in escrow 5,540 3,104 Net change in current assets and current liabilities exc!usive of notes payable to banks- ' Receivables (13,216) (2,818) Materials and supplies. (616) (2,637) Current maturity of long-term debt. . 2,500 1,000 Accounts payable . . . . 12,731 (1,787) Accrued taxes. . . ..... . . . . (360) 2,262 Other, net . . ..... .. .. .. . .. . .. .. . . 523 1,027 1,562 (2,953) Other, net (i) . ... ... . .... . . . (372) 1,840 Gross Property Additions (i) . . ... .. . S 54.958 S 63,221 (i) Includes allowance for equity funds used during construction (Note 1). The accompanying Notes to ~ :.7ancial Statements are an integral part of these statements. 24 - . .
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Pennsylvania Power Company Notes to Financial Statements: (1) Summary of Accounting Policies: the fuel adjustment clause. The energy clause includes all The Company folf ows the accounting policies ano fossil and nuclear fuel costs and the energy component of practices prescribed by the Pennsylvania Public Utility purchase and interchange power. In addition, it provides for Commission (the Commission), the Federal Energy the rollin to base rates of 95% of the total energy costs Regulatory Commission (FERC) and the Securities and experienced in the Company's most recent test year, Exchange Commission under the Public Utility Holding ended July 31,1977, included in a rate increase application. Company Act of 1935. The more significant policies are: The energy clause requires the Company to recover or summarized below. refund energy costs which differ from such base costs over a six-month period which commences two calendar months Revenues- after incurrence. The energy clause also provides for an The Company's residential and commercial customers adhrtment for any over and under collection of energy are metered on a cycle basis.The Company's policy is to costs that result from the operation of this clause. include in revenue residential and commercial service revenues relating to meters read through the end of the During March 1978, the Commission also ordered a month, ceiling placed on the previous fuel adjustment clause rate which was established at the rate in effect during March Pursuant to a rate order effective March 23,1977, the 1978. The ceiling, which became effective with April 1978 Commission granted the Company a rate increase of billings, delayed the recovery of approximately S340,000 approximately S1,304,000 on an annualized basis, retro. of increased fuel costs. active to May 8,1976.The portion of the increase applica-ble to 1976 was reflected in revenues in 1977 and had the in September 1978, the Company began collecting the effect of increasing revenues and net income by S897,000 costs deferred under the previous fuel adjustment clause and $400,000, respectively. and expects to fully recover the deferred fuel adjustment costs amounting to S1,802,000 at December 31,1978. Effective September 11,1977, the FERC authorized the Company to increase its rates for municipal resale service to The effect of the Company's accounting,which has been yield approximately S1,317,000 of additional annual reve- approved by the Commission,was to increase net income nues based on the test year data. The approved rates are for 1978 and 1977 by S624,000 and S85,000, respectively. being collected subject to refund pending the results of further hearings. Operating revenues and net income, Management expects that the Commission will allow the attributable to such rate increase, amount to approxi nately Company full recovery of any deferred costsincluding S1,495,000 and $457,000, respectively, for 1978 and those relating to changes in the lag period or any other S412,000 and $126,000, respectively, for 1977. changes,in accordance with the objectives of the energy Management believes that any refunds which may be clause provisions included in its approved tariffs. required in this case would not have a significant effect on the results of operations for the periods presented. Utility Plant, Depreciation and Maintenance-Revenues attributed to the Company's largest customer Utility plant is stated at the original cost of construction amounted to approximately $14,200,000 and $11,650,000 which includes payroll and related costs such as taxes, for 1978 and 1977, respectively, which represented 11.9% pensions and other fringe benefits, general and and 11.6%, respectively, of the Company's total operating administrative costs and an allowance for funds used during revenues. construction (see Allowance for Funds Used During Construction). The Company provides for the depreciation of Deferred Fuel Adjustmentand Energy Costs- depreciable plant in service on a straight line basis at various The Company defers certain increased fuel and energy rates over the estimated lives of the property. In the costs incurred and estimated to be billable to most opinion af management,the amounts provided have been customers in succeeding periods in accordance with its fuel adequate and the methods used to determine the amounts adjustment and energy c!auses. Effective July 1,1978, the meet the requirements of the regulatory commissions. The Commission adopted a new energy clause which replaced effective annual composite rates for 1978 and 1977 are 1705 340 m
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, Notes to Financial Statements-Continued approximately 3.1% and 3.3%, respectively. Effective retirement units, retired or c ;herwise disposed of in the January 1,1978,the Company revisedits depreciation rates normal course of business, together with the cost of to conform with depreciation rates approved by the removal,less salvage,is charged to the accumulated Commission. The effect of such revision was to reduce provision for depreciation and no gain or loss is recognized book depreciation for 1978 by approximately S890,000. in the income accounts. Repairs of property are charged to Beginning in 1979 the Company will provide for the maintenance.
estimated decommissioning costs of its only nuclear generating unit in service. Property additions, renewals and replacements are charged to utility plant accounts. Property considered to be
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Common Ownership of Generating Facilities-The Company and other Central Area Power Coordination Group (CAPCO) companies own various power generating facilities as tenants ;n common. Each of the companies is obligated to pay a share of the costs of any such jointly owned facilities in the same proportion as its ownership interest therein. The amounts reflected in the accompanying Balance Sheet under utility plant include such costs at December 31,1978 as follows: CAPC0 Units in Service t CAPC0 Units Umier Construction Bruce Bruce Davis. Perry Erie W. H. Mansfield Beaver Mansfield Besse 2 1 and 1and Sammis 7 1 and 2 Valley 1 3 and 3 2 2 Total Thousands of Dollars Utility plant in service S 24.940 $ 45.241' S102,289 S - S - S - S - $172,470 Accumulated provision for depreciation S 4,541 S 2.572 3 6,675 S - S - S - S - $ 13.788 Construction work in progress. S 78 S 396 S 4.939 S 19,622 S 6,709 S 45.481 S 4,474 S 81.699 Nuclear fuel in process . S - S - S - S - S 547 S 361 S 683 S 1,591 Company's ownership in-terest in unit capacity. 20.8 % 5.5% 17.5% 6.28 % 6.28% 6.28 % 6.28% (*) Includes common facilities. (t) The Company's portion of operating expenses associated with the common ownership of generating facilities is included in the corresponding operating expenses in the accompanying Statements of Income. Nuclear Fuel-The Company has lease contrac.ts with a lessor to supply Recent events indicate that the manner of disposition of nuclear fuel for several of the CAPC0 nuclear generating spent nuclear fuel may not be determined for many years, plants in which it has an interest. In addition, the Company therefore necessitating storage of such fuel for an indefinite owns certain minimal amounts of nuclear fuel. The cost of period. The Company is in the process of determining these nuclear fuel in service is charged to fuel expense based on costs and will seek regulatory approval for recovery of such the rate of consumption assuming a zero net salvage value, costs. 1705 34I m . . -. _. _ . . . . . . .. _~. .
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' n Notes to~ Financial Statements-Continued
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Allowance for Funds Used During Construction-- In conjunction with the utilization of a net of tax rate to The allowance for funds used during construction, a compute the allowance for funds used during construction, non cash item which is charged to construction work in deferred taxes are being provided on the allowance for progress during the period of construction, represents the borrowed funds used during construction. net cost of borrowed and equity funds used for construction purposes. In the accompanying Statements of income, the Deferred tax expense results from timing differences in allowance applicable to borrowed funds is reported as a the recognition of revenues and expenses for tax and reduction of Interest Charges and the allowance appl' cable accounting purposes. The sources of these differences and to equity funds is reported as Other income. tax effect of each are as indicated below: 1978 1977 The amount of the allowance has varied as a result of Thousands of Dollars changes in the level of construction work in progress and in Excess of tax depreciation allowed the sources of capital.The Company computes the pursuant to the C5s Life ADR allowance utilizing a net of tax rate consistent with the rate depreciation system, net . . S 1,599 S 1,594 treatment.The rate used during 1978 and 1977 was 8% and Accelerated amortization of the 7.85%, respectively. cost of certain facilities covered by Necessity Certificates. (182) (182) Income Taxes- Property taxes applicable to sub-The provision for income taxes shown in the accompa-sequent years, net . (8) 37 nying Statements of income consists of the following Debt component cf allowance for components: 1978 1977 funds used during construction Thousands of Dollars which is credited to plant , . 1,392 1,910 Currently payable (receivable) 2,801 3,359 Federal . .. .. S - S (741) Deferred fuel and energy costs, State.. . .. ... . . 59 (12) net. . . .. 552 97 Total currently payable Total deferred taxes-net S 3,353 $ 3,456 (receivable) . . 59 (753) Deferred, net-Federal , . .. . 2,880 2,782 For income tax purposes, the Company has claimed State. . . .. ..
- 473 674 liberalized depreciation (double declining balance, guideline lives and the Class Life ADR System provision methods)
Total deferred taxes-net and, consistent with the accounting and rate-making (see below). . . 3,353 3,456 policies of the applicable regulatory authorities, the Investment tax credits-net of Company has followed " flow-through" accounting except amortization (i). . . . . . . . . . . . . (1,458) (554) as indicated above. Income taxes currently payable have also been reduced by the effect of expensing for tax Total provision for purposes such items as taxes, pensions and removal costs income taxes . . . . . . . S 1,954 S 2,149 which are capitalized for rate and accounting purposes. (i) 1978 and 1977 reflect the reversal of previously The Company follows deferral accounting with respect recorded investment tax credits, now being carried forward to investment tax credits and amortizes such credits to due to the carry back of net operating losses. income over the estimated life of the related property. At Such provision is included in the accompanying December 31,1978, approximately S14,000,000 of unused Statements of Income as follows: investment tax credits were available to offset future Federalincome taxes payable, of which $1,000,000 expires 1978 1977 at the end of 1982, $5,000,000 expires at the end of 1983, Thousands of Dollars $4,000,000 expires at the end of 1984 and S4,000,000 expires at the end of 1985. Operatmg Expenses . . . . . . .. S 1,753 $ 1,923 Other income. .. .,.. 201 226 Total provision for income taxes . . . . . . $ 1,954 SR 705 342
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c . ,. The total provision for income taxes shown in the June 30,1978 (the date of the latest actuarial report) was accompanying Statements of Income is less than the S7,804,000. The actuarially computed value of vested amount which would be computed by applying the benefits at June 30,1978 exceeded the market value of the statutory Federalincome tax rate to income before pension fund at December 31,1978 by $665,000. income taxes. The following table summarizes the major reasons for these differences: Purchased and Interchanged Power, Net-Purchased and interchanged power, net in the accom-1970 1077 panying Statements of income includes the interchange of Thousands of Dollars power with Ohio Edison Company, the Company's parent, Back income before provision for which resulted in a net expense to the Company of income taxes . . . . . . . . . . . . . . $16,941 $17,660 $4,500,000 in 1978 and $1,556,000 in 1977.Such Amount of Federalincome tax amounts are determined in accordance with operating expense at statutory rate. .. .. S 8,132 S 8,477 agreements entered into by the Company with the CAPCO Increases (reductions) in taxes companies. These agreements prescribe the method of resulting from: (i) accounting to be followed in the billing of power, and have Allowance for equity been filed with the FERC. funds used during construction . (2,204) (2,452) Sale of Utility Property-Excess of tax over book (4,147) (4,113) In June 1977, the Company sold its 6.28% interest in depreciation . . Other, net the Beaver Valley Nuclear Unit No. 2 to Ohio Edison 173 237 Company. The purchase price was equal to the Company,s Total provision for book value of such assets and, accordingly, no gain or loss income taxes . . S 1,954 S 2.149 was recorded by the Company. (2) Ohio Valley Electric Corporation (OVEC): The Company and Ohio Edison Company, are partici-(i) Under the established rate making practicas of the pating with 13 other investor owned electric utility regulatory commissions to which the Company is companies and with OVEC in arrangements with the subject,it is expected that the deferred taxes not Department of Energy (DOE) to supply the power provided for currently will be collected in customers' requirements of the DOE plant near Portsmouth Ohio.The rates when such taxes become payable. sponsors are entitled to receive from OVEC, and are obligated to pay for the right to receive, any available It is not expected that the cash outlay for income taxes power in excess of the DOE contract demand. The proceeds with respect to any of the succeeding three years will from the sale of power by OVEC are to be sufficient to materially exceed income tax expense for such years. meet all of its costs including amortization of debt capital over a period ending December 31,1981, and to provide Pensions- for a return on common stock. At December 31,1978, The Company has a trusteed noncontributory pension OVEC had debt capital of approximately $43,000,000 plan covering substantially all full time employees. Upon remaining to be amortized.The participation of the retirement, employees are provided a monthly pension Company in the power arrangements is 2%. based on length af service and compensation. Pension costs, including amounts capitalized, for 1978 and 1977 were The Securities and Exchange Commission, acting under S1,949,000 and $1,604.000, respectively, of which the Public Utility Holding Company Act of 1935, reserved S899,000 and S946,000, respectively,were charged to jurisdiction for future determination of whether or not operating expenses and the balances were charged to OVEC's securities could be retained by Ohio Edison other accounts. Such costs include the amortization of past Company or by other companies subject to the Art. service costs on an actuarial basis that approximates 30 Hearings have been held but no decision has been re idered, years. The Company funds pension costs accrued.The estimated unfunded past service liability of the plan at 005 343 m _ _ .
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Notes to Financial Statements-Continued (3) Leases: Substantially all property owned by the Company is The Company rents or leases nuclear fuel, certain trans- subject to a direct first mortgage lien. Based on the mission and distribution facilities, office space and other amount of bonds authenticated by the trustee through incidental equipment and property under cancelable and December 31,1978, the annual sinking and improvement noncancelable leases. The total rent expense included in the fund requirements amount to $1,819,000. It is presently accompanying Statements of Income for 1978 and 1977 contemplated that these requirements will be satisfied in was $3,109,000 and S3,201,000, respectively. The future 1979 by permanently waiving the Company's right to minimum rental commitments as of December 31,1978 for issue bonds against S1,819,000 of the $3,817,000 of all noncancelable leases are as follows: retired bonds that are presently available for that purpose. In the alternative, the Company could deposit funds in tha 1979.......................... S3,454,000 amount called for which could then be withdrawn upon 1980...................... ... 4,021,000 surrender for cancellation of a like principal amount of 1981. . . . . .. . 3,459,000 bands specifically authenticated for such purposes against 1982. .. . . 2,691,000 unfunded property additions. The withdrawal of sinking 1983. 1,363.000 and improvement fund deposits in this manner results in a minor increase in the amount of the annual sinking and 1984 -2019 . . 30.003,000 improvement fund requirements for the Company. As of December 31,1978, the sinking and improvement fund if all noncapitalized financingleases had been capitalized, requirements and maturities of long-term debt for each of the of fect on total assets, total liabilities and expenses the five years ending December 31,1979 through 1983 will would not be material. amount to S5,319,000 in 1979;S4,819,000 in 1980, S6,819,000 in 1981; S7,624,000 in 1982 and $1,819,000 in 1983. (4) Capitalization: Redemption of preferred stock is subject to certain restrictions regarding refunding operations for five years (5) Notes Payable to 3anks and Lines of Credit: from date of issue. The current redemption prices shown The Company ha; lines of credit that provide for herein will decline to eventual minimums in accordance borrowings of up to S20,000,000 at rates varying from with the Charter provisions establishing each series. The prime to 109% of the prevailing prime interest rates.Short-preferred stock is redeemable in whole or in part, unless term borrowings may be made under these lines of credit otherwise noted,at the option of the Company,at any on unsecured notes of the Company.Substantially all of time upon not less than 30 nor more than 60 days notice. the lines expire December 31,1979; however, all unused lines are cancelable at the option of the banks. Under the In December 1977, the Company issued 100,000 shares currently existing Securities and Exchange Commission of 8.24% Series preferred stock. The 8.24% Series of the authorization, which is subject to change from time to Company's preferred stock includes a provision for a time, the Company is limited to short-term borrowings mandatory sinking fund sufficient to retire a minimum of and/orguaranteesof short term borrowingsof $20,000,000. 5,000 shares at $100 per share plus accrued dividends on (See Note 6.) December 1 in each year beginning in 1982. The 11% Series of the Company's preferred stock includes a provision for a mandatory sinking fund sufficient to retire a minimum of 4,000 shares at $100 per share plus accrued dividends on January 1 in each year beginning in 1980. 1705 344 m
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H ' _ The Company maintains cash balances on deposit with and lease obligations incurred in connection with the bank to provide operating funds and to assure avail- developing and equipping the mines whether or not the coal ability of $4,500,000 of the above-mentioned lines of can be utilized because of environmental considerations. As credit. Such compensating balances at December 31,1978, of December 31,1978, the Company's share of the net of " float," are expected to be maintained at an average guarantee was $22,415,000 (S9,855,000-Iong term of S312,000. These balances are not subject to any con- indebtedness, S8,260,000-lease obligations, and tractual restriction against withdrawal. In addition, the S4,300,000-short terra bank credit). It is estimated that Company is nquired to pay a commitment fee to assure the the ultimate aggregate amount to be guaranteed by the availability of an additional S4,500,000 of the above- Company will he S29.772,000 based on presently estimated mentioned lines of credit. mine development costs of $360,000,000. 2 The Company presently contemplates a financing Additional information with respect to these notes payable is as folicws: pgram Mng M peM wM d include @ sale & issuarce from time to time of apprognate add.itional amounts of first mortgage bcods, secured pollution control gy g and environmental notes and obligations, preferred stock Interest rate on outstandin9 and common stock, subject to the limitation requirements bank line borrowings at of tne Company's mortgage incentures and charter. December 31 11.75+ - Maximum amount drawn The Company is sucject to regulation with regard to air down during the year. and water quaiity and other environmental matters by S12,000.000 S21.300,000-
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various Federal, state and local authorities and such regula-Average borrowings during tion might necessitate, for compliance therewith, the the year. S 2,913.00_0 $10.252.000 making of certain additional capital expenditures. At the Weighted average interest present time, the Company emmates that almost rate during the year (based $99,000,000 of capital expenitures may be required to on the daily amounts meet environmental reouirements. Of this amount, ou tstanding) . 11.53% 7.29 % approximately S61,000,000 has been expended prior to 1979 and $25,000,000 is included in the currently estimated cost of property additions and improvements during the 19791983 period referred to above. If Federal (6) Commitments, Guarantees and Contingencies: sulphur dioxide emission lim.tation compliance is required The currently estimated cost of property additions and through the use of Ohio coal only under the Clean Air Act improvements presently expected to be required by the as described below, the totrl presently estimated amounts Company during the period 1979-1983 inclusive is about of expenditures by the Company would increase by S283,100,000 of which S49,300,000 is applicable to the approximately $26,000,000. In connection therewith, there year 1979.The major portion of the Company's are various legal proceedings pending in Ohio and Pennsyl-construction activities during the 19791983 period relates vania relating to compliance with environmental regula-to the CAPCO companies' program for the joint develop. tions. Although the Company is unable to predict the ment of power generation and transmission facilities. In ultimate results of these proceedings, or any additional connectionwith the future commercial operation of nuclear capital and operating expenditures that may be necessary as generatmg units, the CAPC0 companies have entered into a result thereof,it expects that the impact of any such costs commitments with respect to the supply of nuclear fuel and would eventually be reflected in its rate schedules. the Company's share of such commitments is estimated to be S230,000.000. In adoition,under the Clean Air Act Amendments of 1977 and the Federal Water Pollution Control Act as The Company, together with the other CAPC0 amended by the Clean Water Act of 1977, criminal fines or companies, has made long term coal supply arrangements civil penalties could ultimately be imposed in connection with Quarto Mining Company (Quarto). The CAPC0 with these proceedings.The Clean Air Act Amendments of companies have severallv and not jointly, agreed to 1977 include, among other things, provisions requiring the guarantee their pNportionate shares of Quarto's debt imposition of substantial noncompliance penalties for 1705 M5 ao .
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failure to comply with applicable emission limits after Sammis Plant, against the Company and the other July 1,1979 with certain exceptions.The Company has co-owners of the Sammis Plant alleging violations of submitted a schedule relating to compliance with such particulate emission regulations. The Clean Air Act permits applicable emission limits for Sammis Unit No. 7, however, the imposition of civ;i penalties of up to $25,000 per day because of the long lead time required to design, acquire of violation. The extent,if any, that penalties may be and install pollution control equipment, the Company will imposed by the Court for alleged past violations is not now be unable to bring Sammis Unit No. 7 into comr.a.nce by determinable but such penalties could be substantial. Ohio July 1,1979.The schedule filed by the Company would Edison Company, the operator of the Sammis Plant, bring Sammis Unit No.7 into compliance by 1988 and thus, expects to comply with any final order of the Court even if its proposed schedule is accepted, substantial non- involving the operation of the Sammis Plant and in the compliance penalties may result after July 1,1979. The meantime to conduct that operation so as to minimize Company has requested a change in the air basin which particulate emissions to the greatest extent that it deems to would result in an emission standard at its New Castle Plant be practicable. To the extent that it is able to do so, this that could be met by burning low sulfur coal. lf the new litigation should not result in the imposition of any emission standard is not changed, the Company will not be substantial civil penalties for future conouct. able to bring its New Castle Plant into compliance by July 1,1979. If sulfur dioxide removal equipment must Reference is made to " Litigation" for a discussion of a be installed at the New Castle Plant,it could take up to 54 complaint filed by the City of Cleveland against the CAPC0 months and thus substaatial noncompliance penalties may member companies, which asks for damages of result after July 1,1979. lf such changes in air basins or $109,889,000 trebied. Although the Company is unable to the schedules are not accepted, noncompliance , enalties predict the ultimate result of this legal proceeding, the could result and civil and even possibly criminal penalties Company believes that the ultimate disposition of this may be sought. The Company,ir. eurt cases, could even be matter will not result in any material adverse effect on the forced to shut down significant amounts of coal fired Company's financial position and results of operations. capacity. In January 1977,an Atomic Safety and Licensing Board Further,in December 1977, the Federal Environmental of the Nuclear Regulatory Commission (NRC) issued a Protection Agency (EPA) notified the Company that it decision which would impose certain licensing conditions believed the New Castle Plant was in violation of applicable with respect to four CAPCO generating units presently particulate and sulfur dioxide emission limitations. In its under construction in which the Company has ownership letter, EPA offered the Company an opportunity to submit interest. In that decision, the Licensing Board concluded a satisfactory compliance plan.The Company responded to that the issuance of licenses for the nuclear units involved EPA but has since been informed by EPA that its proposal without appropriate license conditions would lead both to is unsatisfactory. Howevar, EPA indicated a willingness to the creation and to the maintenance of a Situation inconsis-further explore the possibility of arriving at an expeditious tent with the antitrust laws. The decision has been appealed, and mutually agreeable consent decree. In its letter, EPA and a stay of the licensing conditions imposed was stated that its policy is to assess a civil penalty in any such requested pending the resolution of the appeal. The motion consent decree which at a minimum would be equal to the for a stay of the licensing conditions has been denied. economic benefit which has accrued to the Company since Although the Company cannot predict the ultimate resolu-August 7,1977 by its failure to achieve compliance. EPA tion of this matter,it does not believe the situation may assert that such economic benefit is substantial The inconsistent with the antitrust laws would be created or Company intends to contest the imposition of any such maintained by its activities under licenses not subject to the civilpenalty butis unable to predict the amount of any civil conditions that would be imposed under the Licensing penalty it might be required to pay. The Company believes Board's decision, if the conditions presently suggested are it has not realized any substantial economic benefit as a ultimately included in the affected licenses, they could have result of its alleged failure to achieve compliance. a materially adverse but presently undeterminable effect on Reference is made to " Environmental Matters" for a discussion of complaints filed with respect to the W.H. 1705 346 31
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Reference is made to " Litigation" for a discussion of Reference is made to " Litigation" for a discussion of complaints filed against the CAPCO member companies complaints filed against the Company by two of its relating to the construction and operation of the Mansfield municipal resale customers alleging certain violations of the and Beaver Valley plants. Although unable to predict the Sherman and Clayton Acts and asking for damages of outcome of these actions, the Company believes that the S7,000,000 trebled. Management of the Company is unable ultimate disposition of these matters will not result in any to predict the ultimate outcome of this action. material adverse effect on the Company's financial position and results of operations. (7) Summary of Quarterly Financi.1 Data: The following data summarize certain operating results for the four quarters of 1978 and 1977. Three Months Ended March 31, June 30, September 30, December 31, 1978 1978 1978 1978 Thousands of Dollars Operating Revenue.. . S27,305 S26,352 S29,556 S35,905 Operating Expenses and Taxes. 21,334 21,141 24.471 28,417 Operating income . . . . 5,971 5,211 5,085 7,488 Other income and (Deductions)-net. . . . 857 1,282 1,163 1,508 Net Interest Charges. . . .... .. . 3,026 3,300 3,457 3,795 Net income . . . .... . .. . S 3,8J2 S 3,193 S 2.791 S 5,201 Net income for Common Stock . . . S 2.637 S 2,028 S 1,626 S 4,036 Three Months Ended March 31, June 30, September 30, December 31, 1977 1977 1977 1977 Thousandsof Dollars Operating Revenues. . '. .. .... S25,031 S23,888 S25,426 S26,498 Operating Expenses and Taxes. . 20,121 18,565 20,255 21,421 Operating income . . . ... ... . 4,910 5,323 5,173 5,077 Other Income and (Deductions)-net. . . . . . . . 1,257 1,724 1,318 1,053 Net Interest Charges. . . . . . . . . . . . . . . . 2.372 2.567 2,606 2,777 N et incom e . . . . . . . . . . . . . . . . . . . . . . . . S 3,795 S 4,480 S 3,883 S 3,353 , Net income for Common Stock . . . . . . . . . $ 2,836 S 3,521 S 2,924 S 2,357 (8) Certain Replacement Cost Data (Unaudited): The impact of the rate of inflation experienced in recent years has resulted in replacement costs of productive capa-city that is significantly greater than the historical costs of such assets reported in the Company's financial statements. In compliance with reporting requirements of the Securities and Exchange Commission (SEC), quantitative replacement costs information is disclosed in the Company's 1978 annual report to the SEC on Form 10-K. 1705 347 a2 -
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Auditors' Report ARTHUR ANDERSEN 8c CO. 1345 AVENUE OF Tite .\MERICAS NEW YORK, N. Y.10O19 To the Board of Directors of Pennsy hania Power Company: We have examined the balance sheets and statements of capitalization of Pennsylvania Power Company (a Pennsylvania corporation and a w holly-ow ned subsidiarv of Ohio Edison Company) as of December 31,1978 and 1977, and the related 3tatements ofincome snd retained earnings and sources of funds for gross property additions for the years then ended.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 necesary in the circumstances. In our opinion, the accompanying financial statements referred to above present fairly the financial position of Pennsylvania Power Company as of December 31, 1978 and 1977, and the results ofits operations and sources of funds for gross property additions for the years then ended,in conformity with generally accepted accounting principles consistently applied during the periods.
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