ML20140B886
| ML20140B886 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1996 |
| From: | Andersen A, Winger G PENNSYLVANIA POWER CO. |
| To: | |
| Shared Package | |
| ML20140B855 | List: |
| References | |
| NUDOCS 9706060372 | |
| Download: ML20140B886 (16) | |
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I i i b I ANNUAL REPORT i
i 1996 i
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9706060372 970530 PDR ADOCK 05000334 a
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CoursxTs COMPANY Paorite Selected Financial Data . . . . . ... ....... I y ennsylvania Power Company provides electric service Management's Discussion A to more than 144,000 customers in western and Analysis . ............... ....,2 Pennsylvania. The Company furnishes electric service in Statements of Income .. . . .. .. .4 139 communities, as well as rural areas, and also sells Balance Sheets 5
.. . . ...... ..... electric energy at wholesale ta four mumcipalitics. Its Statements of Capitalization . . . . . . . . ..... 6 service area has an estimated population of 343.000. The Statements of Retained Earnings .. .. . . .7 Company, with headquarters in New Castle, Pennsylvania.
Statements of Capital Stock and is a wholly owned subsidiary of Ohio Edison Company.
Other Paid-la Capital . . . . . ........ . .7 Statements of Cash Flows . . . ..... .. .8 Statements of Taxes ..................9 Notes to Financial Statements . .. ...... 10 Report of Independent Public Accountants .............. .. .. . 15 Directors and Officers ........... .... 16 I
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Seierro FINANCIAL Dm P- ... -P _ C- ,
..I 1996 1995 1994 1993 ,,_,1291 _
(Dollars in tha.aamma)
Operating Revenues . . . . . . . . . . . . . . . . . . W $ 314.642 N $_222,.Q14 $ 315.458 l Not Income . . . . . . . . . . . . . .........
@ $ 38.930 $ 31.260 $ 21.317 @
Earnings on Common Stock . . . . . . . . . . . . . @ $ 34.155 @ $ 15.454 $ 24.457 Return on Average Common Equity . . . . . . . . g% .g% g% g% g%
Cash Dividends on Common Stock . ......
@ @ L23 m 1 27.676 l
Total Asseta .... ................. ggg,gg ILl4(Jg4 gMggg ggg,g), g l CAPITALIZATION:
Common Stockholder's Equity . . . . . . . . . . . $ 286.504 $ 271.920 $ 258.973 $ 254.782 $ 261,518 Preferred Stock-Not Subject to Mandatory Redemption . . . . . 50.905 50.905 50.905 50.905 41,905 Subject to Mandatory Redemption ... . . 15,000 15.000 15.000 20,500 30,362 Long-Term Debt . . . . . . . . . . . . . . ..... 310.996 338.670 424.457 440.555 398.630 Total Capitalization . . . . . . . . . . . . . .
M $ 676.495 $ 749.335 $ 766.742 5 732.415 CAPITALIZATION RATIOS:
Common Stockholder's Equity . . ... . . . 43.2 % 40.2% 34.6 % 33.2 % 35.7 %
Preferred Stock-Not subject to Mandatory Redemption . . . . . 7.7 7.5 6.8 6.6 5.7 Subject to Mandatory Redemption ....... 2.2 2.2 2.0 2.7 4.2 long-Term Debt . . . . . . . . . . ... . . . _4,f.,,2 50.1 .j6_f 57.5 54.4 Total Capitalization . . . . . . . . . . . . . . ig,g% igg 5 go% m% ig,g%
KILOWATT. HOUR SALES (Millions):
Residential . . .... ... .. ....... 1.254 1,195 1.178 1.105 1,050 Commercial . . . . . . . . . . . . . . . . . . . 996 938 891 831 782 Industrial ............ ..... ..... 1.693 1,558 1,293 1.212 1.674 Other . ...... .................. __121 12.1 148 139 _ 12 1 Subtotal . . . . . . . . . . . . . . . . . . . . . . . 4.069 3,842 3.510 3,287 3,644 Parent Company . . . . . . . . . . . . . . . . . . . 221 250 468 469 786 Other Utilities . . . . . . . . . . . . . . . . . . . _,763 _sfl _4Q6 748 ._996 Total . . . . . . . . . . . . . . . . . . . . . JJfg g ,g4J ,4,,,gg 1J29 CUSTOMERS SERVED:
Residential . . . . . . . . . . . . . . . . .. . 127,936 126,480 124.951 123,316 121,879 Commercial . . . . . . . . . . . . . . . . . . . . . . . 16.531 16.317 15.966 15,593 15.348 ladustrial .. . . . . . . . . . . . . .. .... , 225 223 219 221 235 Other........................... 99 97 98 97 100 Total . . . . . . . . . . . . . . -. . . . . . . . . . M 143.117 M M 12L192 Average Annual Residential Kilowatt-Hours Used 9.866 9.505 9.501 9,017 8.672 Cost of Fuel per Million Btu . . . . . . . . . . . $ I.09 $ 1.12 $ 1.20 $ 1.28 $ 1.26 Peak lead (Megawatts) ... ........... 792 836 710 690 734 Generating Capability:
Coal............... . ...... . . 72.1 % 72.1% 72.1 % 74.6 % 74.6 %
0i1............ . ...... 4 . . 3.0 3.0 3.0 2.8 2.8 N uclear . . . . . . . . . . . . . . . . . ...,.. .,24,9 24.9 24.9 ,22_t .22.6 Total . . . . . . . . . . . . . . . ........ j,gg% 13,g% ig 0% 100 0 % 13,0%
SOURCES OF ELECTRIC GENERATION:
Coal ...... .................... 67.6 % 65.6 % 69.6 % 76.8 % 68.3 %
Nuclear . . . . . . . . . . . ........ . . . .)) 4 34.4 30 4 _23_2 31 7 Totai . . ... ................ gg% m% ).20.2 5 1E.25 1E.25 NUMBER OF EMPLOWES . ......... .J.,d!j Q 5
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bAGEMENT'S DISCUSSION AuD ANALYSIS Or RESuLTS Or OPERATIONS AND FiNANci4L CONDmON respectively. Industrial sales increased 8.7% during the RESULTS OFprogress make significant OPERATIONS-We during 1996 as the continued year.to Excluding Caparo, industrial sales were up 1.9%
electric utility industry becomes more competitive in in 1996 after increasing 6.3 % the previous year. Sales Pennsylvania. We achieved record operating revenues to other utilities increased 5.5 % in 1996, and were in 1996 over the previous record set in 1991. The relatively flat in 1995 compared to 1994. As a result of higher revenues and our aggressive cost control efforts these factors, total kilowatt-hour sales were up 5.8% in .
led to our third consecutive annual increase in net 1996, following a 7.5 % increase in 1995. I income. Our 1996 results reflect accelerated Because of higher kilowatt-hour sales, we spent ,
depreciation and amortization of nuclear and regulatory more on fuel and purchased power in 1996 and 1995. 1 assets totaling approximately $28.5 million under our Nuclear operating costs dropped 32.6% in 1996 due Rate Stability and Economic Development Plan. principally to lower refueling outage cost levels. Other Our ongoing commitment to cost control continues operating costs in 1996 were slightly above the 1995 .
to produce good results. Total operation and level, which decreased in comparison to 1994 due to a maintenance expenses in 1996 were lower than any year charge that year of approximately $8.4 million for a since our newest generating unit began commercial voluntary retirement program offered to qualifying ,
operation in 1987. A review of the work we do was an employees.
integral part of the Performance Initiatives program that Higher depreciation charges in 1996 resulted 4 began in 1993 and continues as a part of our Corporate mainly from $20 million of accelerated nuclear !
Strategy program. Efficiencies continue to be identified depreciation recognized under our regulatory plan l whish have resulted in further opportunities for referred to above. A higher level of depreciable utility restructuring. In 1996, we reduced our work force by plant and an increase in the accrual for nuclear 205 employees, mostly from restructuring activities in decommissioning costs contributed to the 1995 increase, our districts and our generation group. We expect these compared with the previous year. The 1996 change in actions to result in annual savings of approximately $13 amortization of net regulatory assets was due to the cost million. Also, using economic value added-based recovery taking place under our regulatory plan.1995 justification for capital spending contributed to a $12 results reflect no amortization of regulatory assets million reduction in our construction expenditures in because we stopped deferring postretirement benefit 1996, compared to our base year of 1993. costs in 1994 and provided a reserve against the Higher operating revenues in 1996 were due to amounts which had been deferred in 1993. The changes increased retail sales, which were partially offset by a in general taxes are primarily due to 1995 property tax decrease in other operating revenues resulting from adjustments that totaled approximately $4.7 million.
reduced billings to Ohio Edison for Bruce Mansfield The increase in other income, compared to 1995, is ;
Plant costs. The following table summarizes the sources principally due to a 1996 adjustment to the recoverable of changes in operating revenues for 1996 and 1995 as costs related to Perry Unit 2 as a result of our rate I compared to the previous year: stability plan. Interest costs were lower in 1996 and 1995 due to our economic refinancings and redemption B E of higher-cost debt. During 1996, we reduced our total U" "'III'""4 debt by more than $80 million. Preferred stock dividend increami rwail Lilowatt-hour sala $16.5 518.6 requirements were down in 1995 due to the redemption Change in average reail etwtricity price 0.3 ts.1) of preferred stock in the second half of 1994. The 1994 Sales to utilities (0.2) (0.8) amount also included a $325,000 charge for premiums l Other (8.6) -
paid on preferred stock redeemed in that year. I Nd lacrease W g l The 1995 start-up of Caparo Steel Company, which C APITAL RESOURCES the past five AND LIQUIDITY-Ove years, we have significantly improved purchased the assets of Sharon Steel Corporation, and our financial position as evidenced by our enhanced an improvmg local economy helped us achieve a 6.8%
fixed charge coverage ratios and the percentage of increase in retail sales, following a 9.8% gain in 1995.
common equity to total capitalization. Our SEC ratio of Our customer base continues to grow with over 1,600 earnings to fixed charges improved to 3.49 at the end of new retail customers added in 1996, after gaining 1996 from 2J37 at the end of 1991. The Company's nearly 1,900 customers the previous year. Residential indenture ratio, which is used to determine our ability sales were up 4.9 % m 1996, after rising 1.5 % last to issue first mortgage bonds, increased from 3.36 at year. Commercial sales followed the same trend, the end of 1991 to 4.96 at the end of 1996. Over the increasing 6.1 % and 5.3 % m 1996 and 1995.
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same period, the charter r:tio--s measure of our ability significantly reducing fixed costs and lowering rates to l to issue preferred stock-improved from 1.75 to 2.33, a more competitive level. For the plan to succeed, it is and our common equity percentage of capitalization imperative that we build on the success of our l rose from approximately 35 % at the end of 1991 to Performance Initiatives and Corporate Strategy l
over 43 % at the end of 1996. programs and continue to find ways to increase
! All cash requirements for the year, including debt revenue, reduce costs and enhance shareholder value.
! repayments, were met with internally generated funds. On September 13, 1996, our parent company, Ohio Our cash requirements in 1997 for operating expenses, Edison, entered into an agreement to merge with construction expenditures and scheduled debt maturities Centerior Energy Corporation under a new holding tre expected to be met without issuing additional company called FirstEnergy Corp. If the merger is securities. Cash requirements of approximately $26 approved, Ohio Edison will become a subsidiary of million for the 1997-2001 period to meet scheduled FirstEnergy, but will remain the Company's parent.
maturities of long-term debt are also expected to be The Financial Accounting Standards Board (FASB) funded internally. issued a proposed accounting standard for nuclear We had about $4 million of cash and temporary decommissioning costs in February 1996. If the investments and no short-term indebtedness on standard is adopted as proposed: (1) annual provisions December 31, 1996. We also had $2 million of unused for decommissioning could increase; (2) the net present short-term bank lines of credit, and $12 million of bank value of estimated decommissioning costs could be facilities that provide for borrowings on a short-term recorded as a liability; and (3) income from the external basis at the banks' discretion. decommissioning trusts could be reported as investment During 1996, our capital spending (excluding income. The FASB has indicated that it plans to issue a nuclear fuel) totaled approximately $20 million. Our revised proposal or fmal accounting standard in 1997.
capital spending for the period 1997-2001 is expected to The Clean Air Act Amendments of 1990, discussed be about $100 million (excluding nuclear fuel), of m Note 6, require additional emission reductions by which approximately $21 million applies to 1997. This 2000. We are pursuing cost-effective compliance i is about $38 million lower than actual capital outlays strategies for meeting the reduction requirements that over the past five years. begin in 2000, investments for additional nuclear fuel during the 1997-2001 period are estimated to be approximately $33 million, of which about $9 million applies to 1997.
During the same periods, our nuclear fuel investments tre expected to be reduced by approximately $32 million and $7 million, respectively, as the nuclear fuel is consumed.
Reference is made to Note i for a discussion of regulatory assets. In accordance with our regulatory plan, electric rates include recovery of all regulatory assets, including accelerated recovery of those regulatory assets.
UTLOOK-On December 3,1996, Pennsylvania O enacted "The Electricity Generation Customer Choice and Competition Act", under which residents of Pennsylvacia will be permitted to choose their electric generation supplier, while transmission and distribution services will continue to be supplied by their current providers. Customer choice will be phased in over three years, beginning in 1999, after a two-year pilot program. The new Pennsylvania law also establishes procedures and standards for the recovery of stranded costs over an eight to nine-year period in the form of a transition charge on customer billings, and allows utilities to seek Pennsylvania Public Utility Commission (PPUC) approval to securitize, or refinance, stranded costs which have been determined by the PPUC to be recoverable. This legislation continues to provide for cost recovery in a manner which meets the criteria for
( application of Statement of Financial Accounting j Standards No. 71, " Accounting for the Effects of
- Certain Types of Regulation."
l Our regulatory plan provides the foundation to position us to meet the challenges we are facing by i
i STATEMEms OrINCOME Pe ms,imia Power C 1 l
For the Years Ended December 31, 1996 1995 1994 (In thousands)
OPERATING REVENUES .. ..... . . ...... $322.625 $314.642 $301.965 OPERATING EXPENSES AND TAXES:
Fuel and purchased power . . . . . . ... .. . . . . 67,443 63,059 59,529 l Nuclear operating costs . .... . . . . ...... 22.664 32,759 33,480 ;
Other operating costs ... . ...... .... .. .. . 59.753 .,,,,j,8,,9,,j 9 65.424 1 Total operation and maintenance expenses . . . . . . . . . . .. .. 149,264 154,777 158,433 )
Provision for depreciation ........ .. . . . . 51,579 33,152 29,108 l Amortization of na regulatory assets . ..... . . ... .. 5.535 -
4.339 General taxes . .. .. .. . ... . 24.415 28,278 23,137 i income taxes .... .... ...... . . .... .... . . . 29.907 31.118 __23,280 1 Total operating expenacs and taxes . . . . . . .. _ 260.296 247.325 238.297 OPERATING INCOME . . . . . . ... . ... . .. .... . 62.329 67,317 63,668 OTIIER INCOME , . . . . . ...... .... .. . .... 5.760 .2.213 1.811 TOTAL INCOME .. . . . . . .. .. .. .. .. .. 68.089 69.530 65.479 i NET INTEREST:
Interest on long-term debt . . . .. . . . 25,715 28.937 32,130 Interest on nuclear fuel obligations . ... . .. . ... 219 407 519 Allowance for borrowed funds used during construction ...... .. 0 87) (750) (728)
Other interest expense . .. . ... ... . . . . .. .... h9ss _ 2.006 . 2.298 Net interest . . .. .. . . .. . . . ., .
_ 27.502 30.600 34.219 NET INCOME . . . . . . . .... ... . . .. .. 40.587 38,930 31,260 i PREFERRED STOCK DIVIDEND REQUIREMENTS .. ... . 4.626 4.775 5.364 l 1
1 EARNINGS ON COMMON STOCK ,... ., . .. $ 35.961 $ 34.155 $ 25.896 j
The accompanying Notes to Financial Statements are an integral part of these statements.
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BALANCE Sums P_ieania Po , C-v At Deceanber31 1996 1995 (la th>===A)
ASSETS UTILITY PLANT:
In service, at original cost . . . . . . . . . . . . . . . . . . .. . . ... ...... ... ... $1.228.618 $1.215,274 Laas-Accuamtated provision for depreciation ... .... . ........ ....... . 465.003 426.974 763.615 788.300 Construction work in progress-Electric plant . . . .................. . . .. . ... ... . .. .. 7,645 10,997 Nuclear fuel ................. ........ ..... .. .......... . .. 1.803 7.858 9.448 18.855 -
773.043 807.155 OTiiER PROPERTY AND INVFSIMENTS . .. ... .. . .. . .. ... 21.131 14.550 CURRENT ASSETS:
' Cash and cash equivalents . . . . . ... .... .. ..... . .. . .... 1,387 20,984 i Notes receivable from parent company (Note 4) ..... .... . ........... ... .. 2,500 22,000 Accounts receivable-Customers (less accumulated provisions of $569.000 and $563,000, respectively, for uncollectible accounts) . . . . .. .. . .. 38.054 35.987 Parent congany . ... .. . .... .. ... . . . . .. .. . .. 14,450 14,M5
- Other . . . . . .................... .... .. . .. ... . .. .. 14.970 15,329
, Materials and supplica, at everage cost . . . . . . ... .. . .. ... .. ... 14J69 15,588 l Prepayments . . . . ....... . .. . ... ... .. ... 1.576 2.113
! 87.206 126.966 DEITRRED Cit ARGES:
Regulatory assets . .. .. ... .. .. . .. . . . . .. 177,283 189,900
- Other...... . .. .... ... ....... .. . .. 7.212 7.833 l 184.495 107.733 l
g $1.146.404 CAPITALIZATION AND LIABILITIES l CAPITALIZATION (See Statements of Capitalization):
l Common stockholder's equity .... ... . .. . .... . .. $ 286.504 $ 271,920 Preferred stock-Nat subjeci to mandatory tedemption . . . .. ..... . .. .. .. .. 50.905 50,905 Subject to mandatory redemption . . .. .... . .. .... .. . . .... , 15.000 15,000 long-term debt-Associated companies . . . . . . . . . . . . . . . . . . .. ... .... .. 7,245 11,648 i Other ........ .... . . ... . .. ... . . . 303.751 327.022 l
. 663.405 676.495 l CURRENT LIABILITIES:
Currently payeble long-term debt-Associated companies . . . . ....... ... . .. .. .. .. .. . ti.784 6.180 Other . ......... ..... . ..... . .... . . ... . .. 712 53,817 Accounts payable-Associated companies . . .. . ....... . .. . . . .... .. 8,084 10,593 Other . ........ ..... .. . . .. .. . .. .. 25.686 26,013 Accrued taxes . . . . . . . ... .. .. .. .. . . 14.823 16,221 Accrued interest . . . . . . . .. . .. . . .. .. . . 7.382 8,487 Odier . ..... . ... . . ... ... .. .. . 21.199 28.345 84.670 149.656 DEFERRED CREDITS:
Accumulated deferred income taxec . .. .. .. .. . . . 253.776 260.458 Accumulated deferred investment tax credits .. .... .. . .. ... 28,383 30,521 Other... .. . ........ . ... .. . . .. 35.661 - 29.274 317.820 320.253 COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 2 & 5) . .
$1.065.845 $ 1.146.404 The accompanying Notes to Financial Statements are an integral part of these balance sheets.
i Snrowms Or Cmuuzmos . . _ P oimia Po r C.-. !
i (Donats in thounaads, except per share amounts) ;
At Decemsher 31, 1996 1995 >
l COMMON STOCKHOLDER'S EQUITY:
Common stock, $30 par value. 6.500,000 shares authorized,6.290.000 sharca outstanding ... ... . $188,700 $188,700 l Other paid-in capital . . . . .. . . .... . . ... ..... ..... ............ (413) (422)
Retained earnings (Note 3a) ....... . .... , . . . .. ... ........ ........ 98.217 83.642 l
l Total common stockholder's equity ..,.., .. .. .........., ......... .. . .. 286.504 271.920 Nussber of Shares Optional Outstandm Reglemmation Ptice 1996 1995 Per Share Amartaate PREFERRED STOCK (Note 3b):
Cumulative. $100 par value- l Authorized 1.200.000 share Not subject to mandatory redemption:
4.24 % ....... . .,..... . . 40,000 40,000 $ 103.13 $ 4,125 4,000 4.000 4.25% ....... ............. .. 41,049 41,049 105.00 4.310 4,105 4,105 4.64 % ......... .. ..... .. 60.000 60.000 102.98 6.179 6,000 6.000 ,
7.64 % .. .......... . . ... . 60.000 60,000 101.42 6,085 6,000 6.000 7.75 % . ... ... . ..... . ..., 250.000 250,000 - - 25,000 25,000 8.00 % .... . ... .... . ... 58mo 58.000 102.07 E 5.800 5.800 Total not subject to mandatory redemption . 500 049 509,049 $ 26.619 90 905 50.905 Subject to mandatory redemption (Note 3c):
7.625 % . . . . . . . . . . . . . . . . . .. .., 150 000 I to,000 Ic000 15.000 l LONG. TERM DEBT (Note 3d): ;
First mortgage bonds- '
9.000% due 1996 ........... .. . . .... ... . .... .... -
50.000 9.740% due 1999 2019. . . . . . . ..... . ... . .. . ..... .. ........ 20,000 20,000 7.500% due 2003 ... . .... . . . . . .. . ... . .. .. ... . 40.000 40.000 6.375% due 2004 . . ...... . . ............ .. . ... . ..... 37,000 50.000 ,
6.625% dus 2004 . . . . .. .. . . . . ..... ... .... ....... ....... 20,000 20,000 1 8.500% due 2022 .... ..... . .... . ..... ... .............. 27,250 27.250 7.625 % due 2023 . . . . . . ...... .... ... .. .. . .. . .......... . _ 6.500 19.500 Total first mortgage bonds . . ..... . ... ... ........... .... . 150.750 226.750 Secured notes-4.750% due 1998 . . . .. . . .. . ,, . . . . . . .. .. . ... 850 850 6.080% due 2000 . . . . . . . . . . .... .. ..... ... . . .. .. .. . . 23,000 23,000 5.400% due 2013 . ... .... . ... .. ..... . . .. ........... 1,000 1.000 5.400% due 2017 . . . . . . .. . ..... . .. . . .. ....... 10.600 10.600 7.150% due 2017 . . . . . . . . . * . . .. . . .. ... ... 17,925 17,925 5.900% due 2018 . . . . . .. . . .. .. ,, .. . . . . . 16.800 16,800 8.100% due 2018 . . . . .. ... , . ... . . .. .. .... 10,300 10,300 8.100% due 2020 . . .. ... . . . . .. 5.200 5,200 7.150% due 2021 . . . . .... . . .... . . . . .. . 14,482 14,482 6.150% due 2023 .. , . . ...... . .. . 12,700 12.700 6.450% due 2027 . . . . . .. . .. . ... . . ., . 14,500 14.500 5.450% due 2028 . . . . . . .. . .... . .. , . . 6,950 6.950 6.000% due 2028 . . .. . ., .. .. . . .. .. .. . . 14,250 14,250 5.950% due 2029 . . ... .. ... . ... .. . . 38 238 Total secured notes . . . . . ... .. .. . .... . . . ... .. .. . 148.795 148.795 ;
i' Other obligations-Nuclear fuel .. . .. . . . .. ... . , , ... 14,029 17.828 i Capitalleases (Note 2) . ... . . . , ... . . _ 5.651 6.309 Total other obligations . . . .. . . .. . .. . . . . . . 19.f*0 24.137 Net unamortized discount on debt . . . . . .... . . .. . . . .. .. 033) (1.015)
Long-term debt due within one year .. .,,. . . ... . .. .. . O.496) 69.99h
, Total long. term debt . . . .. ... .. .. ....... .. . ........... . . . 310.996 338.670 TOTAL CAPITALIZATION ... ..., .. ...... . .. .... . . . . . . $66L405 $67A495 i
j The accompanying Notes to Financial Statements are an integral part of these statenwnts. ;
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t STATEMEFis Or RETAiurm EAxNiNas P-vi.e.ia Po.er C.- .
For the Years Emded Deceanber 31, 1996 1995 1994 (la thousaswin)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . ............ . $ 83.642 $ 70,873 $ 66.392 N ot income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 40.587 _lLHQ 31.260 i En 100.803 97.M 2 l
Cash dividends on common stock . . . . . .... .. . ... ... . .. .... 21.386 21.386 21.386 l Cash dividends on preferred stock . . . . . ........ .. ..... . ..... 4.626 4.775 5.035 Premium on redenetion of preferred stock ...... . . ... .. .. . - -
358 26.012 26.161 26.779 Balance at end of year (Note 3a) . ... .. .... . . . .... .. ...
M } jt.3m 64] $ 70.873 1
l STATEMENTS Or CAPITAL Smcx AND Onten PAiDdN CAPITAL Preferred Stock Not Subject to Subject to Cosim on Stock Mandatory Redesuntaoa Mandatory Redesmataos Other Number Par Paid-la Number Par Nussber Par of Share .Yaha Cantal of Shares Yahat of Shans Xaba (Douars in thousands)
Balance, January 1,1994 . . . . .... 6,290.000 $188.700 $(310) 509.049 $50.905 213.616 $21,362 Minimum liability for unfunded retirement benefits . . . . ... . (290)
Redemptions-11.00 % Series . . . . . . . . . . . (3,616) 0 62) 13.00 % Series . . . ..... (60.000) f6.000)
Balance, Decesuber 31,1994 . ... . 6.290,000 188,700 (600) 509.049 50,905 150,000 15.000 Minimum liability for unfunded retirement benefits .. .. .. 178 R=Imare, Decessber 31,1995 . . . 6.290,000 188.700 (422) 509,049 50,905 150.000 15,000 Mininsam liability for unfunded retirement benefits . . ....... 9 Balance Decesaber31,1996 . .. . 6.290.000 $188.700 g) 500.049 P0.005 150.000 $t5.000
'Ihe accompanying Notes to Financial Statements are an integral part of these statements.
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Sunurxrs Or CAsn Fwws P_ie ie Pom., Cos. v i
1 j For the Years Emded Deconsber 31, 1946 1995 1994 l (la thousand6) ;
CASil FIEWS FROM OPERATING ACTIVITIFS:
Net income . . . . . . , . . . . .. . . .
l j . .. . ....... . .. $ 40,587 $ 38.930 $ 31.260 l
l Adjustments to reconcile net income to net cash from operating activities: !
Pmvision for depreciation . ... . ....... ..... . .... ... 51.579 33.152 29,108 l Nuclear fuel and lease anottization . . . . . . .. . .... .. ... . 8.693 II.337 ' 10,656 l Amortization of nel regulatory assets . .. .. ........ ... . 5.535 -
4.339 ;
Deferred income cases. net . . . .. . .. ... . ....... 396 8.144 7.578 investment tax credita, net . ...... . . .... (2.138) (1,688)
(1.351) i Allowance for equity funds used during construction . . ... .. .. . ... - -
(408)
Deferred fuel costs, ner . . . . . ... .. .... ... . . . . 3,220 155 (4.091)
Receivables .... .... . . . ... . . .. . . . ... ... (1.193) 64 (1,059) !
Materials and supplies . . . . .. . ....... .. .... 1.319 1.451 (601)
Accounts payable . ... .. . ... ........ .. . . (2,472) 1,848 (1,686)
Other .... , , .... .. .. . .. . . .. .. Jjl#7) I!.003 31.051 Net cash provided from operating activities . .. . ... . 91.739 104.396 104.796 CASII HAWS FROM FINANCING ACTIVITIFS:
New Financing-Lorng-term debt . . .. . ........ ....... . .. . . . . -
13.528 11.868 Redemptions and Repayments- !
Preferred atock . . . ..... . .. .... . . .. ... ..... .. - -
6.687 Long term debt . . . . . .. . . ... ...... . .... .. . 84.347 67,337 23,655 Dividend Paymenta- !
Common stock .... ...... ..... . ... . . .... .. . 21.386 21.386 21.386 Preferred stock , . .. .. ........ .. . . ......... . 4.626 4.775 5.035 Net cash used for financing activities . .. . ........ . . .. I10.359 79.970 44.895 r
CASil FIA)WS FROM INVESTING ACTIVITIES:
Property additions . . . . . . . ..... .. ...... . . . .. .... 20,361 29.705 30.072 lean to parent . . . . . .. ....... . .. .... .... .. . . ... - - 25,000 lean payment from parent . .. . ... . . . ...... (19.500) (3,000) -
Sale of utility propeny to parent . . , . . . . . .. . . . .. . - (4,249) -
Other ........ ...... (1.814) 44R i
. .. ... .. . ....... _l).s Net cash used for investing activities ..... . . ..... .. 977 20.642 55.520 Net increase (decrease) in cash and cash equivalents . . . .. ... .. (19.597) 3.704 4,381 Cash and cash equivalents at beginning of year . . . .. . . . .. 20.984 17.200 12.819 {
Cash and cash equivalents at end of year . . ,. . . .. ,,,,. $ 1.3N7 5 20.9N4 5 17.200 t SUPPLEMENTAL CASil FIX)WS INFORMATION:
Cash paid during the year-Interest (net of amounts capitalized) . . . . . . . . . $ 26.653 5 30.215 5 31.738 t income taxes .. .. . . . . . .. . . . . . 36.815 26,605 19,873 The accompanying Notes to Financial Statements are an integral part of these statements.
l l
l
)
I STAmams Or Trxts P - i.aain Pow.,C -
For the Years W Decensber31 1996 R 1994 (le ha)
GEW. ERAL TAXES:
Stala gmas teceipts . . . . . . . . . ........... .. ...... ........ .... $ 12.305 $ 11,680 $ 11,024 Reel and pe monalproperty . . . . .. ..... .. ... .. .......... .... 6.178 11.222 6,699 ;
State capital stock . . . . . . . . . . . . . . . ............... ...... . ...... 2.820 2,499 2.440 t Social escurity and unemployment . . .. . . . . ..... . . . .... .. 2.064 2,440
..... 2.590 Other . . . . . . . . . . . . . . . . . . . . . .... ... .... .. .. . .. .. . . 648 437 384 ,
Total general tenes .. .. ...... ... .... .. .... . .. ... . g M $ 23.137 PROVISION FDR INCOME TAXES:
Currently payable-
)
Federal . . . . . . .... ...... ... .. .
. ..... ... ...... . $ 27.282 5 20.352 $ 11,040 State . . . . . . . . . . . . . . ..... . .... ... .. . . . .. .... . ,7J81 ,,_121} 7.066 35.163 26.135 18.106 Deferred, net-Federal .......... . .. ..... .. ..... . ........ ... . 272 6,222 8,088 State........................... . ...... .... ... .. 124 .,,_L9E _ . . (510)
,_196 8.!44 E Investment tax credit amortization . ...... . ...
Total provision for income taxes . . .. . .. .. . ... . ..........
.. ... .... .... (2.138) . (1.688) - f.L32 M M 114jJJ INCOME STATEMENT CLASSIFICATION OF PROVISION FUR INCOME TAXES:
Operating expenses . . . . . . . . . . . . . . . .. .. . ...... .... $ 29.907 5 31,118 $ 23.280 Other income . ........ ............ .. . .. .. ..... 3.514 1.4 73 1,053 Total provision for income taxes . . . . . . . . . . . , , . .. ... . . . .... g LJ1L,1 $ 24.333 RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FUR INCOME TAXES:
Book inconw before provision for income taxes . ..... . ....... ...... Qg M $ 55.493 Federalincome tax expense at statutory rate . . . . . .... ....... ... . .... $ 25,%3 $ 15.032 $ 19.458 Increases (reductions) in taxes resulting from:
State inconw taxes, not of federal income tax benefit .......... ...... ... .. 5503 5,008 4.261 !
Amortization of investment tax credits ........ ...... .. ............. (2,138) (1,688) (1,351) ,
Amortization of tax regulatory assets . . . . . . . . . ............... 4.423 4,398 2.231 l Other, net . . . . . . . . . . . . ...... ..... ...... ......... .. .. M (159) ,,,,,,,,,,,Q6f)
Total provision for income taxes . . . . . . . . . . .... ........... .. 1),J,&l 1,31 191 $ 24.333 ACCUMt' LATED DEI' ERRED INCOME TAXES AT DECEMBER 31:
Property basis differences . . . . . . ... . .. ..... .. . $178.886 $178.589 $178.345 Allowance for equity funds used during scostruction ... . .. ........ 33,677 38.894 39.921 Lkferred nuclear expenne . . ........ .... . . , . ,. 8,031 8.681 8,914 Custonwr receivables for future income taxes . .. .. .. . . . 40.901 43.801 55,498 Unamortized investment tax credits . .... .. . . .. . ... . (11,635) (12.510) (13.557)
Othe r . . . . . . . . . . . . . . . . . . . . . . , .. . . .. . . . .. 3 916 3.003 8.421 Net deferred inconw tax liability ... ..... . ... . . $253.176 $260.458 $277.542 The accompanying Notes to Financial Statements are an integral part of these statements.
Lr1s To Fmuca Srir8ueurs
- 1. bUMMARY Or SicsiriCAur ACCounrlua PotlClest TILITY PUNT AND DEPRECIATION-Utility plant reflects the ongmal cost of construction, including payroll and related costs such as taxes.
employee benefits, administrative and general costs and T heEdisonCompany, Company a whollyfollows (Edison), owned subsidiary of Ohi the accounting financing costs (allowance for funds used during policies and practices prescribed by the construction).
Pennsylvania Public Utility Commission (PPUC) and The Company provides for depreciation on a straight- i the Federal Energy Regulatory Commission (FERC). line basis at various rates over the estimated lives of I The preparation of financial statements in conformity property included in plant in service. The annual composite j with generally accepted accounting principles requires rate for electric plant was approximately 2.7 % in 1996, <
management to make periodic estimates and 1995 and 1994. In addition to the straight-line depreciation assumptions that affect the reported amounts of assets, recognized in 1996, the Company also recognized additional liabilities, revenues and expenses. capital recovery of $20 million as additional depreciation expense in accordance with the regulatory plan.
Depreciation expense in 1996 included approximately R EVENUES-The Company's providing electric service to customersprincipal in western business is
$2.8 million for future decommissioning costs applicable to Pennsylvania. The Company's retail customers are the Company's ownership interest in two nuclear generating metered on a cycle basis. Revenue is recognized for units. The Company's share of the future obligation to unbilled electric service through the end of the year. decommission these units is approximately $74 million in Receivables from customers include sales t current dollars and (using a 2.8% escalation rate) residential, commercial and industrial customers located approximately $142 million in future dollars. The estimated in the Company's service area and sales to wholesale obligation (based on site-specific studies) and the escalation customers. There was no material concentration of rate were developed using information obtained from receivables at December 31,1996 or 1995, with respect consultants. Payments for decommissioning are expected to to any particular segment of the Company's customers. begin in 2016, when actual decommiwinning work begins.
The Company has recovered approswaldy $5 million for decommissioning through its ele % rates from customers R EGUMTORY PMN-The Stability and Economic Company's Development Plan was Rate through December 31,1999 a h amounts are reflected in approved by the PPUC in the second quarter of the reserve for depreciation m the Balance Sheet. If the 1996. The regulatory plan maintains current base actual costs of decommissioning the units exceed the funds !
electric rates for the Company through June 20,2006, accumulated from investing amounts recovered from ;
and revised the Company's fuel cost recovery method. customers, the Company expects that additional amount to l All of the Company's regulatory assets are being be recoverable from its customers. The Company has recovered under provisions of the regulatory approximately $4.9 million invested in external plan. In addition, the PPUC has authorized the decommissioning trust funds as of December 31, 1996.
Company to recognize additional depreciation Earnings on these funds are reinvested with a corresponding ;
expense related to its generating assets and additional increase to the depreciation reserve. The Company has also j amortization of regulatory assets during the ten-year recognized an estimated liability of approximately $3.6 regulatory plan period of at least $358 million more million related to decontamination and decommissioning of I than the amounts that would have been recognized if the nuclear enrichment facilities operated by the United States ,
regulatory plan was not in effect. These additional Department of Energy (DOE), as required by the Energy I
amounts are being recovered through current rates. Policy Act of 1992.
In December 1996, Pennsylvania enacted *The The Financial Accounting Standards Board (FASB)
Electricity Generation Customer Choice and inued a proposed accounting standard for nuclear !
j Competition Act," which will permit residents, decommissioning costs in February 1996. If the standard is including the Company's customers, to choose their adopted as proposed: (1) annual provisions for electric generation supplier, while transmission and decommissioning could increase; (2) the net present value of distribution services will continue to be supplied by estimated decommissioning costs could be recorded as a their current providers. Customer choice would be liability; and (3) income from the external decommissioning j phased in over three years, beginning in 1999, after a trusts could be reported as investment income. The FASB two-year pilot program. has indicated that it plans to issue a revised proposal or final ,
accounting standard in 1997.
l OMMON OWNERSHIP OF GENERATING consolidated tax li bility is allec:ted on a " stand-clone" CFACILITIES-The Company and other Central company basis, with the Company recognizing any tax Area Power Coordination Group (CAPCO) losses or credits it contributed to the consolidated return.
companies own, as tenants in common, various power generating facilities. Each of the companies is obligated ETIREMENT BENEFITS-The Company's trusteed, to pay a share of the costs associated with any jointly noncontributory defined benefit pension plan covers owned facility in the same proportion as its interest. almost all full-time employees. Upon retirement, The Company's portion of operating expenses employees receive a monthly pension based on length of associated with jointly owned facilities is included in the service and compensation. The Company uses the projected corresponding operating expenses on the Statements of unit credit method for funding purposes and was not income. He amounts reflected on the Balance Sheet required to make pension contributions during the three under utility plant at December 31,1996, include the years ended December 31,1996.
following: He following sets forth the funded status of the plan and amounts recognized on the Balance Sheets as of vanity Accumul ted commme- camp.my's December 31:
1%et Provinism the Owner-Generatang is fur Work is abip 1996 1995 tialta Service Denrariathe Praareas Interent gg, , igg;,,y (ta smilaness) Actuarial primant ealue of tweefit obligathms:
W. II. Sammis #7 $ 57.5 $ 19.5 $- 20.80 % Vested bements $ 94.7 $ 98.5 Bmce Maasndd Noevested tweents 8.2 8.5
- 1, #2 and #3 93.4 43.4 .2 5.76 % Accumulated bement obliantinu $102.9 $107.0 Beever VaBey #1 226.0 101.9 .8 17.50 %
Perry #1 340.0 93.7 .4 5.24% Plan auds at fair value $150.5 $136.3 Total $716,0 $258.5 $1.4 Actuadal Pmwat value of pmjected
. bement oblimation 122.8 131J Plan assets in excess of projected banent obligation 27.7 5.0 UCLEAR FUEL-OES Fuel, Incorporated (OES UmrmW ad gain (21.8) (3.4)
NFuel), a wholly owned subsidiary of Edison, isUnrecommad the prior service cost 4.1 5.0 (6.3) (7.4) sole lessor for the Company's nuclear fuel l's.,r.gonnimi ad transition assw s ,,.;,, , n;,3;i;,y, g 3,7 s , ,g, requirements.
Minimum lease payments during the next five The assets of the plan consist primarily of common yens are estimated to be as follows: stocks, United States government bonds and corporate bonds. Net pension costs for the three years ended (in millions) December 31,1996, were computed as follows: I 1997 56.8 1998 3.4 1"6 l*5 1994 1999 2.0 (la millions) 2000 1.5 Me cebenees camal y "4 during the period $ 3J $ 2.9 $ 3.3 laterest on pmjectal benefit obligathm 9.5 8.8 8.2 The Company amortizes the cost of nuclear fuel Raurn as ptsa assets (22.5) (31.0) 1.3 based on the rate of consumption. The Company's Nd deferral (amortization) 9.6 19.1 (14.1) electric raies include amounts for the future disposal of montary cady raimnemt spent nuclear fuel based upon the formula used to P"8'"" "8" " - -
'I Gain on nian curtailment 4.3) - ~
compute payments to the DOE. sw ne.usion mt $ M.5) $ L2) $ 7.x The assumed discount rates used in determining the INCOME income taxesTAXES-Details of the total are shown on the Statements provision actuarial of Taxes. for present value of the projected benefit obligation Deferred income taxes result from timing differences was 7.5% in 1996 and 1995 and 8.5% in 1994. The in the recognition of revenues and expenses for tax and assumed rate of increase in future compensation levels used accounting purposes. Investment tax credits, which to measure this obligation was 4.5% in each year. Expected were deferred when utilized, are being amortized over long-term rates of return on plan assets were assumed to be
- the recovery period of the related property. The liability 10% in each year.
I method is used to account for deferred income taxes. The Company provides a minimum amount of Deferred income tax liabilities related to tax and nor. contributory life insurance to retired employees in cecounting basis differences are recognized at the addition to optional contributory insurance. Health care statutory income tax rates in effect when the liabilities benefits, which include certain employee deductibles and tre expected to be paid. The Company is included in copayments, are also available to retired employees, their j Edis(m's consolidated federal income tax return. The dependents and, under certain circumstances, their l
- II -
l i
survivors. De Company pays insurance premiums to accumulited postretirement benefit obligation wzre 7.5% in cover a portion of these benefits in excess of set limits; 1996 and 1995 and 8.5 % in 1994. An increase in the health all amounts up to the limits are paid by the Company. care trend rate assumption by one percentage point in all The Company recognizes the expected cost of providing years would increase the accumulated postretirement benefit other postretirement benefits to employees and their obligation by approximately $6.5 million and the aggregate beneficiaries and covered dependents from the time annual service and interest costs by approximately $0.8 million. l employees are hired until they become cliF ible to receive those benefits. The PPUC authorized the Company to defer incremental l In accordance with Statement of Financial costs resulting from a 1993 accounting standard for Accounting Staadards (SFAS) No. 88 ' Employers' postretirement benefits, for future recovery from its retail Accounting for Settlements and Custailments of Defined customers. Similar authorizations relating to some other Benefit Pension Plans and for Ternunation Benefits," utilities regulated by the PPUC were appealed by the Office the net pension costs shown above and the of Consumer Advocate to the Commonwealth Court of
~
postretirement benefit costs shown below include Pennsylvania. The Commonwealth Court has issued curtailment effects (significant changes in projected plan conflicting opinions and both cases have been appealed to assumptions) relating to the pension and postretirement the Pennsylvania Supreme Court. Due to the uncertainty benefit plans. De employee terminations in connection resulting from these conflicting opinions, the Company with the Company's 1996 restructuring activities provided a reserve of $4.3 million ($2.5 million after-tax) in ,
represent a plan curtailment that significantly reduces 1994, representing the amount deferred in 1993.
the expected future employee service years and the related accrual of defined pension and postretirement rpRANSACTIONS WITil AFFillATED benefits. In the pension plan, the reduction in the J COMPANIES-Transactions with affiliated companies benefit obligation increases the net pension asset and is are included on the Statements of Income as follows:
shown as a plan curtailment gain. In the postretirement '*
I*
benefit plan, the unrecognized prior service cost g 3 associated with service years no longer expected to be operaties revenues:
rendered as a result of the terminations, is shown as a Flactric sales to FAinon $ 3.6 $ 4.4 $ 8.9 8" " PI"
Pl an curtailment loss. ads--arative and semeral ne following sets forth the funded status of the char,es 4. Fai.ra - 6.1 6.0 plan and amounts recognized on the Balance Sheets as other tramnactions with 1 3 d of December 31: ,d ,, g, gig IN 1* Fuel and purchaned power; i 08 """"I Power purchaned femus FAimon $13.2 $t5.1 $12.7 !
A""I*d P"8"85""'" M Nuclear fuel leaned frees Wh eBaratimu OES Fuad 9.6 12.0 11.5 Rohruss $24.4 2J
$23J 1.4 m SN $ 2 hsBy sheible active plan participaans mher operstms cents:
Otiser active mina a.f 17.1 19 4 _ Rental of tr==*===
Accumulated postrahrmama M $ 1.0 $ 1.0 $ 1.1 au r- 43.7 43.7 lines from FAinos
.2 .2 Data proconnias services Plan assets at faar vahne Accumulated y R _ beneng
^
fross FAinos 23 2.6 2.7
=adigan=== in escens of plan annets 43.5 43.5 Other transactions with (23.0) F4ison 3.9 4.0 3.9 Unrecessamed trummision ehlisation (18.5) & 7,7 U-- ' ' met loss 0.0) (6.0) $ 7.4 $ 7.6 Net mostreeir====a benent liability $22.0 $14.5 UPPLEMENTAL CASil FLOWS Net pericxlic postretirement benefit costs for the SINFORMATION-All temporary cash investm
' three years ended December 31,19% were computed purchased with an initial maturity of three months or as follows: less are reported as cash equivalents on the Balance Sheets.
3* I The Company reflects temporary cash investments at cost, h s aiusw service cost-benents auributed which approximates their market value. Noncash financing to the persed $1.1 $1.1 $1.1 and investing activities included capital lease transactions 3"""
- g"' """I"'d 3.2 4.0 3J am unting to $4.1 million, $3.7 million and $7.6 million for j the years 1996,1995 and 1994, respectively.
Amortianham of tr===*= obligation 1.3 1.7 1.7 Amornashes ofless .1 .I J All borrowings 'vith initial maturities of less than one Dd",",'*d*[* _, _ ,7 year are defined as fmancial instruments under generally Lons on alma cunnilmaemt 3.5 - - accepted accountmg pnnciples and are reported on the Net meriodic mostrwtirement benent cost 59.2 56.9 57.2 Balance Sheets at cost, which approximates their fair market value. He f 11 wing sets forth the approximate fair value The health care trend rate assumption is 6.0% in and related carrying amounts of all other long-term debt, the first year gradually decreasing to 4.0% for the year preferred stock subject to mandatory redemption and 2008 and later. De discount rates used to compute the - - - . - _ . - _ . -
i1 vestments other than cash and cash equivci:nts as of December 31: 2. Leases:
1996 1995 C*"1"8 y M', C*g8 g The Company leases certain transmission facilities, os millione office space and other property and equipment under
,,na e,n. da,e $3n0 $302 5376 $3n, cancelable and noncancelable leases. Consistent with the y d m sstock 5 15 5 14 5 15 53 regulatory treatment, the rental payments for capital and
",'g",""",g"7 '3"" operating leases are charged to operating expenses on the ui . .i. ss s9 $6 $ 6 Statements of Income. Such costs for the three years ended ne fair values of long-term debt and preferred December 31,1996, are summarized as follows:
stock reflect the present value of the cash outflows relating to those securities based on the current ca!! 3* 1*
_ g price, the yield to maturity or the yield to call, as op,,,,;,, g,,,
deemed appropriate at the end of each respective year. Interest annent 5 .5 s .3 s .2 He yields assumed were based on securities with other I .3 1.0 .9 s'.milar characteristics offered by a corporation with capital leam credit ratings similar to the Company's ratings. I'[,*' d"""' }7 j -
3j The fair value of investments other than cash and 7,, g n.,, g ,,,,,, $3,4 93,4 $3,4 cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on The future minimum lease payments as of December 31, the yield to maturity. He yields assumed were based 1996, are: 1 on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents capital operating consist primarily of decommissioning trust investments. "
'*[ mini Unrealized gains and losses applicable to the 1997 s 1.7 s .3 decommissioning trust have been recognized in the trust 1998 1.4 .2 investment with a corresponding offset to the reserve for depreciation. The Company has no securities held fooo d j 2001 1.0 .2 for trading purposes. Years thereafter 11.6 3.4 Total minimma lease payunets 17.9 4 14J Enwu aory costs 3J N1 minimum icase paymenti 14.2 R ECUL4 recognizes,TORY ASSETS-The as regulatory assets, costs Company which the In[gnion 8.6 FERC and PPUC have authonzed for recovery lease paymmes 5.6 from customers in future periods. Without such Im currmt nortion .7 cuthorization, the costs would have been charged to N""' t'""i"" 5d' income as incurred. All regulatory assets are being recovered from customers under the Company's 3. CArrTAUZATION: l regulatory plan. Based on the regulatory plan and the recently enacted Pennsylvania law which continues to provide for stranded investment recovery, the Company a. REraiNED EARNINGS-Under the Company's believes it will continue to be able to bill and collect Charter, the Company's retained earnings unrestricted cost-based rates; accordingly, it is improbable that the for payment of cash dividends on the Company's Company will be required to terminate application of common stock were $86.7 million at December 31, SFAS No. 71, " Accounting for the Effects of Certain 1996.
Types of Regulation,"in the n>reseeable future. De Company also recognized additional cost recovery of $8 b. PRErERRED STOCx-The Company s 7.625s and million as additional regulatory asset amortization in 7.75% series of preferred stock have restrictions which 1996 in accordance with its regulatory plan. prevent early redemption prior to October 1997 and July Regulatory assets on the Balance Sheets are 2003, respectively. All other preferred stock may be comprised of the following: redeemed by the Company in whole, or in part, with j,,6 jy 30-60 days' notice.
On anilhons)
Custaner rwedvables for future incone taxes s 99.s $106.9 c. PRErERRED STOCx SUBJECT TO MANDATORY he"r'Ihm'"NeSiEtion Ims on reacquired debt
$I 9.8 k6 11.0 REDEMPTION-The Company's 7.625 % series has an DOE dwommissioning and annual sinking fund requirement for 7,500 shares dwontamination costs 3.9 4.2 beginning on October I,2002.
Deferred fuel costs 3.N 7.0 Tot al 5177.3 Si g
- d. lANG TERM DEBT-Re first mortg ge MUCLEAR INSURANCE-The Price-Anderson Act ;
indenture and its supplements, which secure all of 1 y limits the public liability relative to a single incident at '
the Company's first mortgage bonds, serve as a nuclear power plant to $8.92 billion. The amount is ,
direct first mortgage liens on substantially all c vered by a combination of private insurance and an property and franchises, other than specifi ally industry retrospective rating plan. Based on its present )
excepted property, owned by the Company. Long- wnership interests m Beaver Valley Unit I and the Perry term debt maturities (excluding capital leases) Plant, the Company's maximum potential assessment under during the next five years are $.9 million in 1998, the industry retrospective rating plan (assuming the other
$.S millionin 1999, $24.0 million in 2000 and $1.0 CAPCO companies were to contribute their proportionate million in 2001. share of any assessments under the retrospective rating plan) would be $18 million per incident but not more than $2.3 He Company's obligations to repay certain milli n in any one year for each incident.
pollution control revenue bonds are secured by series of The Company is also insured as to its interest in Beaver '
first mortgage bonds and, in some cases, by subordinate Valley Unit I and the Perry Plant under policies issued to liens on the related pollution control facilities. the operadng company for each plant. Under these policies, l '
up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Company I
- 4. SIIORT. Team Fiurscisc has aise ob,ained app,oximately $ ,0 miilio ,of,,,,,,,c,
- '*'"8* ' "*P *=*a' AnarsceMeurs. i Perry and Beaver Valley Unit e **'. c "'"these 1 Under r r policies, it iate'a"
the ia' Company can be assessed a maximum of approximately $3 He Coinpany has lines of credit with banks that million for incidents at any covered nuclear facility provide for borrowings of up to $2 million under occurring during a policy year which are in excess of various interest rate options. Short-term borrowings accumulated funds available to the insurer for paying losses.
may be made under these lines of credit on the The Company intends to maintain insurance against Company's unsecured notes. To assure the availability nuclear risks as described above so long as it is available.
of these lines, the Company is required to pay annual To the extent that replacement power, property damage, commitment fees of 0.50%. These lines expire at decontamination, decommissioning, repair and replacement various times during 1997. costs and other such costs arising from a nuclear incident at The Company also has a credit agreement with any of the Company's plants exceed the policy limits of the Edison whereby either company can borrow funds from insurance in effect with respect to that plant, to the extent a the other by issuing unsecured notes at the prevailing nuclear incident is determined not to be covered by the prime or similar interest rate. Under the terms of this Company's insurance policies, or to the extent such agreement the maximum borrowing is limited only by insurance becomes unavailable in the future, the Company the availability of funds; however, the Company's would remain at risk for such costs, borrowing under this agreement is currently limited by the PPUC to a total of $50 million. Either company can .
UARANTEES-The Company, together with the other terminate the agreement with six months' notice. CAPCO companies, has severally guaranteed certain debt and lease obligations in connection with a coal
- 5. COMMITMENTS, GurarxTees supply contract for the Bruce Mansfield Plant. As of oocembe,3i, i,96, the Comgany s sha,e or the guarantee Axo Cosuscenciest (which approximates fair market value) was $7.3 million.
n e p, ice u s e,the coat suppi, m mt,act, w hic u nci a es certain minimum payments, has been determined to be ONSTRUCTION PROGRAM-The Company's sufficient .to satisfy the debt and lease obligations. The C current forecast reflects expenditures of Company's total payments under the coal supply contract approximately $100 million for property additions amounted to $11.1 million, $9.8 million and $10.1 million and improvements from 1997 through 2001, of which during 1996,1995, and 1994, respectively. The Company's approximately $21 million is applicable to 1997. minimum annual payments are approximately $4 million Investments for additional nuclear fuel during the 1997- under the contract, which expires December 31, 1999.
2001 period are estimated to be approximately $33 million, of which approximately $9 million applies to NVIRONMENTAL MA7TERS-Various federal, state 1997. During the same periods, the Company's nuclear and kical authorities regulate the Company with regard fuel investments are expected to be reduced by to air and water quality and other environmental approximately $32 million and $7 million, respectively, matters. The Company has estimated additional capital as the nuclear fuel is consumed.
expenditures for environmental compliance of approximately
$1 million, which is included in the construction forecast under " Construct. ion Program" for 1997 through 2001.
i
, "me Company was in compliance with the sulfur dioxide (50 2) and nitrogen oxides (NO,) reduction Rsroar OrIsosessonsr !
requirements for 1996 under the Clean Air Act Amendments of 1990. SO, reductions through the year Puntic ACCOUNTANTS 1999 will be achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, To the Stockholders and Board of Directors of Pennsylvania j and/or purchasing emission allowances. Plans for P wer Company: 1 complying with the reductions required for the year 2000 and thereafter have not been finalized. The We have audited the accompanying balance sheets and Environmental Protection Agency is conducting statements of capitalization of Pennsylvania Power Company i additional studies which could indicate the need for (a Pennsylvania corporation and wholly owned subsidiary of !
additional NO, reductions from the Company's Ohio Edison Company) as of December 31,1996 and 1995, and the related statements of income, retained earnings, i Pennsylvania facilities by the year 2003. The cost of such reductions, if required, may be substantial. The capital st ck and other paid-in capital, cash flows and taxes Company continues to evaluate its compliance plan and f r each of the three years in the period ended j other compliance options. December 31,1996. These financial statements are the !
1.egislative, administrative and judicial actions will resp nsibility of the Company's management. Our j continue to change the way that the Company must resp nsibility is to express an opinion on these financial j operate in order to comply with environmental laws and statements based on our audits. ,
regulations. With respect to any such changes and to the We conducted our audits in accordance with generally j environmental matters described above, the Company accepted auditing standards. Those standards require that we j cxpects that any resulting additional capital costs which plan and perform the addit to obtain reasonable assurance may be required, as well as any required increase in about whether the financial statements are free of material i operating costs, would ultimately be recovered from its misstatement. An audit includes examining, on a test basis, j i
customers. evidence supporting the amounts and disclosures in the '
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
- 6. SuuuAny Or QoAaTracy management, as weii as evaiuating the ove,aii ,inanciai
, p n statement presentation. We believe that our audits provide a r INANCIAL 11ATA (UNAUDITED): reasonable basis for our opinion, in our opinion, the financial statements referred to
) The following summarizes certain operating results above present fairly, in all material respects, the financial by quarter for 1996 and 1995. position of Pennsylvania Power Company as of December 31,1996 and 1995, and the results of its Marth 31, June 30, Sept. 30, Dec. 31
""** *
- operations and its cash flows for each of the three years in ,
fl miniols the period ended December 31, 1996, in conformity with l
, Operating Revenues $80.3 $81J $80.5 $80.5 generally accepted accounting principles.
4 Operating Espenses and Taxes 60.4 66.3 66.4 67.2 Operating laceme 19.9 15.0 14.1 13J Other Income .3 3.9 .9 .6 Net laterent 7.2 6.9 6.9 6.5 Arthur Andersen LLP Ntt locoene $13.0 $12.0 $ N.1 $ 7.4 Earmags on Common Stock $1 f .9 $10.9 $ 7.0 $ 6.2 Cleveland, Ohio February 7,1997 Marth 31, June 30 Sept. 30. Dec.31, Thrve Months l'aded 1995 1994 1995 1905 (la millions)
Operating Revenues $73.9 $77.6 $81.3 $81.8 i Operating Expcases and Tauen 57.1 60.N 65.8 63.6 Operating Income 16.8 16,8 15.5 18J Other laccene .8 .4 J .6 Net Interent 8.2 7.6 7.4 7.3 Net lucome $ 9.4 $ U.6 $ N.4 $g Earmugs ou
- Common Sinck $ R.2 $ R.3 $ 7.3 $10.3 l
BOARD OF BOARwMaron.
DiaEcroas unsr CIIANGES Orricsas H. {eter Bug . R. Joseph Hrach, former Stark Willard R. Ilolland President and Chief Operatmg Division manager of the Chairman of the Board and Officer, and Chief Financial Company's parent, was named Chief Executive Officer Officer of the Company s president of the Company in parent, Ohio Edison Company, R. Joseph Ilrach July 1996. Mr. Hrach replaced Akron, Oh,io. Charles E. Jones, who was President appointed manager of Ohio Edison's Northern Region. Ja E.
Willard R. Ilolland ,
Chairman of the Board and Robert H. Carlson, a director Chief Executive Officer of the of the Company since 1983, Robert P. Wushinske Company, and Chairman of the retired from the Board in Vice President, Secretary, C ii Exemtive March 1996. Treasurer, and General cer o p ,,
parent, Ohio Edison Company, Akron, Ohio. David W. McKean Comptroller R. Joseph Ilrach Randy Scilla President of the Company, Assistant Secretary and New Castle, Pennsylvania. Assistant Treasurer Mr. Holland is Chairman of Joseph J. Nowak the Board and Chief Executive Retired, formerly Vice Officer of the Company's President of Armco Inc., a parent. The principal manufacturer of steel products, employment of all other Pittsburgh, Pennsylvania. officers is with the Company.
TRANSFER AGENT and Jack E. Reed REGISTRAR for Preferred Vice President of the Stock:
Company, New Castle, Ohio Edison Company Pennsylvania. Investor Services 76 South Main Street Akron, Ohio 44308-1890 j Richard L. Werner Chairman of the Board and PRINCIPAL OFFICES:
President of Werner Co., a 1 E. Washington Street manufacturer of aluminum P. O. Box 891 extrusions, ladders and New Castle, Pennsylvania scaffolding, Greenville, 16103-0891 j Pennsylvania. (412) 652-5531 Diascron Pennsylvania Pow Cornpany is an equal opportuntry EMERITUS c'"Pl oJ"-
G.12o Winger !
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1 Pennsylvania Power Company l 1 E. Washington Strect l P. O. Box 891 i New Castle, PA 16103-0891 i (412)652-5531 !
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1996 Annual Report l
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