<PAGE>
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
PPL Electric Utilities Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[Logo of PP&L]
PPL Electric Utilities Corporation
Notice of Annual Meeting
April 28, 2000
and
Information Statement
(including appended 1999 Financial Statements)
<PAGE>
Notice of Annual Meeting of Shareowners
The Annual Meeting of Shareowners of PPL Electric Utilities Corporation
("PPL Electric Utilities" or "the Company") will be held at Lehigh
University's Stabler Arena, at the Goodman Campus Complex located in Lower
Saucon Township, outside Bethlehem, Pennsylvania, on Friday, April 28, 2000,
at 1:30 p.m., preceding the Annual Meeting of Shareowners of PPL Corporation
("PPL"). The Annual Meeting will be held for the purposes stated below and
more fully described in the accompanying Information Statement, and to
transact such other business as may properly come before the Meeting or any
adjournments thereof:
1. The election of three directors for a term of three years and one
director for a term of one year.
The Board of Directors is not aware of any other matters to be presented for
action at the Annual Meeting. If any other business should properly come
before the Meeting, it is the intention of the Board of Directors that the
persons named as proxies will vote in accordance with their best judgment.
Proxies are not being solicited from PPL Electric Utilities shareowners
because a quorum exists for the Meeting based on the PPL Electric Utilities
stock held by its parent, PPL. PPL owns all of the common stock and as a
result 99% of the voting shares of PPL Electric Utilities, and intends to vote
all of these shares in favor of the election of the Company's four nominees as
directors.
Only Shareowners of record at the close of business on Tuesday, February 29,
2000, will be entitled to vote at the Annual Meeting or any adjournments
thereof. All Shareowners are invited to attend the Meeting in person. If the
Annual Meeting is interrupted or delayed for any reason, the Shareowners
attending the adjourned Meeting shall constitute a quorum and may act upon
such business as may properly come before the Meeting.
By Order of the Board of Directors.
/s/ Robert J. Grey
Robert J. Grey
Secretary
March 13, 2000
<PAGE>
Information Statement
The Company's principal executive offices are located at Two North Ninth
Street, Allentown, Pennsylvania 18101, telephone number (610) 774-5151. This
Information Statement was first released to Shareowners on or about March 13,
2000.
PPL Electric Utilities' parent, PPL, owns all of the shares of the Company's
common stock, which represents 99% of PPL Electric Utilities' outstanding
voting shares. As a result, a quorum exists for the Annual Meeting based on
PPL's stock ownership. ACCORDINGLY, WE ARE NOT ASKING THE SHAREOWNERS FOR A
PROXY, AND SHAREOWNERS ARE REQUESTED NOT TO SEND US A PROXY.
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has established Tuesday, February 29, 2000, as the
record date for Shareowners entitled to vote at the Annual Meeting (the
"Record Date"). The transfer books of the Company will not be closed. PPL
Electric Utilities' Restated Articles of Incorporation (the "Articles") divide
its voting stock into four classes: 4 1/2% Preferred Stock, Series Preferred
Stock, Preference Stock and Common Stock. There were no shares of Preference
Stock outstanding on the Record Date. Each currently outstanding share of each
class of stock entitles the holder to one vote upon any business properly
presented to the Annual Meeting. A total of 103,204,705 shares was outstanding
on the Record Date, consisting of 102,230,382 shares of Common Stock (all
owned by PPL), 247,658 shares of 4 1/2% Preferred Stock and 726,665 shares of
Series Preferred Stock.
As of February 15, 2000, the following are the only entities known by the
Company to own more than five percent of any class or series of preferred
stock entitled to vote at the Annual Meeting:
<TABLE>
<CAPTION>
Name and Number of Percent of Class
Address of Shares (all Preferred
Title Beneficial Owner Beneficially Owned Stock)
- ----- ---------------------------------- ------------------ ----------------
<S> <C> <C> <C>
6.75% Series Wellington Management Company, LLP 85,000(a) 8.72%
Preferred Stock 75 State Street
Boston, MA 02109
</TABLE>
- -------
(a) Number of shares beneficially owned includes shares for which Wellington
Management Company, LLP exercises investment and/or voting power, but
which are held by one of its wholly owned subsidiaries and/or investment
advisory clients.
Although proxies are not being solicited, Shareowners may attend the Annual
Meeting and vote in person. If you plan to attend the Annual Meeting and vote
in person, we will give you a ballot when you arrive. However, if your shares
are held in the name of your broker, bank or other nominee, you must bring an
account statement or letter from the nominee indicating that you were the
beneficial owner of the shares on February 29, 2000, the record date for
voting. PPL intends to vote all of its shares of the Company's common stock,
or 99% of the voting shares of the Company, in favor of election of each of
the four nominees for director (see "Election of Directors"), thereby assuring
the election of these directors.
To preserve voter confidentiality, the Company voluntarily limits access to
Shareowner voting records to certain designated employees. These employees
sign a confidentiality agreement which prohibits them from disclosing the
manner in which a Shareowner has voted to any Company employee or to any other
person (except to the Judges of Election or the person in whose name the
shares are registered), unless otherwise required by law.
With respect to the election of directors, Shareowners have the
unconditional right of cumulative voting. Shareowners may vote in this manner
by multiplying the number of shares registered in their respective names on
the Record Date by the total number of directors to be elected at the Annual
Meeting and casting all of such votes for one nominee or distributing them
among any two or more nominees. The nominees receiving the highest number of
votes, up to the number of directors to be elected, will be elected. Authority
to vote for any individual nominee can be withheld by striking a line through
that person's name in the list of nominees. Shares will be voted for the
remaining nominees on a pro rata basis.
1
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
PPL Electric Utilities has a classified Board of Directors, currently
consisting of nine directors divided into three classes. These classes consist
of three directors whose terms will expire at the 2000 Annual Meeting, three
directors whose terms will expire at the 2001 Annual Meeting, and three
directors whose terms will expire at the 2002 Annual Meeting. The directors of
the Company also serve as the directors of PPL.
The nominees this year are John W. Conway, E. Allen Deaver, Elmer D. Gates
and W. Keith Smith. Messrs. Deaver and Gates are currently serving as
directors, while Messrs. Conway and Smith would be elected as new directors.
Messrs. Deaver and Gates were elected by the Shareowners at the 1997 Annual
Meeting. If elected by the Shareowners, Messrs. Conway, Deaver and Gates would
serve until the 2003 Annual Meeting and until their successors shall be
elected and qualified. If elected by the Shareowners, Mr. Smith would serve
until the 2001 Annual Meeting and until his successor shall be elected and
qualified. Following the election of these four nominees and the retirement of
two directors as discussed below, there would be nine members of the Board of
Directors, consisting of three classes: three directors whose terms would
expire at the 2001 Annual Meeting, three directors whose terms would expire at
the 2002 Annual Meeting, and three directors whose terms would expire at the
2003 Annual Meeting.
The Board of Directors has no reason to believe that any of the nominees
will become unavailable for election, but, if any nominee should become
unavailable prior to the meeting, PPL intends to vote its shares of PPL
Electric Utilities common stock for the election of such other person as the
Board of Directors may recommend in place of that nominee.
The Board of Directors
recommends that Shareowners vote FOR Proposal 1
NOMINEES FOR DIRECTORS:
JOHN W. CONWAY, 54, is President and Chief Operating Officer of
Crown, Cork & Seal Company, Inc., Philadelphia, Pa., a position
he has held since 1998. Crown, Cork & Seal is a leading
international manufacturer of packaging products for consumer
goods. Mr. Conway joined Crown, Cork & Seal in 1991 as a result
of its acquisition of Continental Can International
Corporation. Prior to 1991, he served as President of
Continental Can and in various other management positions. Mr.
Conway is the past-President of the Can Manufacturers Institute
and is a director of Crown, Cork and Seal, the National Food
Processors Association, West Pharmaceutical Services and
Chestnut Hill College. He received his B.S. in Economics from
the University of Virginia and his law degree from the Columbia
University Law School.
[Photo of Conway
E. ALLEN DEAVER, 64, retired in January 1999 as Executive Vice
President and a director of Armstrong World Industries, Inc.,
Lancaster, Pa., a manufacturer of interior furnishings and
specialty products. He graduated from the University of
Tennessee with a B.S. in Mechanical Engineering and joined
Armstrong in 1960. He is a director of the Internacional de
Ceramica S.A. (Mexico), Penn State Geisinger Health System and
Donsco, Inc. Mr. Deaver, chair of the Compensation and
Corporate Governance Committees of PPL and PPL Utilities and a
member of the Executive and Finance Committees of PPL and PPL
Electric Utilities, has been a director since 1991.
[Photo of Deaver]
2
<PAGE>
ELMER D. GATES, 70, retired in December 1999 as Vice Chairman
of Fuller Company, Bethlehem, Pa., a company involved in the
design and manufacture of plants, machinery and equipment used
in the cement, paper, power and processing industries. He has a
B.S. in Mechanical Engineering from Clarkson College. Mr. Gates
is a former director of Ambassador Bank, Chairman of the Board
of SI Handling Systems, Inc., a director of the Lehigh Valley
Economic Development Corporation and president of the Lehigh
Valley Partnership. Mr. Gates, chair of the Finance Committees
of PPL and PPL Electric Utilities and a member of the
Compensation and Corporate Governance and Executive Committees
of PPL and PPL Electric Utilities, has been a director since
1989.
[Photo of Gates]
W. KEITH SMITH, 65, served as Vice Chairman of Mellon Financial
Corp. and Senior Vice Chairman of Mellon Bank N.A., Pittsburgh,
Pa., as well as a director of both organizations, until his
retirement in 1998. Mr. Smith also is a director of Dentsply
International, Inc. He currently serves on the board of
Allegheny General Hospital and several other not-for-profit
boards. Mr. Smith received a Bachelor of Commerce degree from
the University of Saskatchewan and his M.B.A. from the
University of Western Ontario, Graduate School of Business
Administration.
[Photo of Smith]
DIRECTORS CONTINUING IN OFFICE:
FREDERICK M. BERNTHAL, 57, is President of Universities
Research Association (URA), Washington, D.C., a position he has
held since 1994. URA is a consortium of 87 major research
universities, and is management and operations contractor on
behalf of the U.S. Department of Energy for the Fermi National
Accelerator Laboratory. Dr. Bernthal served from 1990 to 1994
as Deputy Director of the National Science Foundation, from
1988 to 1990 as Assistant Secretary of State for Oceans,
Environment and Science, and from 1983 to 1988 as a member of
the U.S. Nuclear Regulatory Commission. He received a B.S. in
chemistry from Valparaiso University, and a Ph.D. in nuclear
chemistry from the University of California at Berkeley. Dr.
Bernthal is Chair of the Nuclear Oversight Committee of PPL
Electric Utilities, and a member of the Audit Committee of PPL.
He has been a director since 1997; his term ends in 2002.
[Photo of Bernthal]
WILLIAM J. FLOOD, 64, is Secretary-Treasurer of Highway
Equipment & Supply Co. (HESCO), Harrisburg, Pa., supplier of
heavy equipment for highway construction, industry and general
contractors. Mr. Flood received a B.A. from Dartmouth College
and joined HESCO in 1960. He is a director of HESCO, Penn State
Geisinger Health System, Hescorp, Inc., PNC Bank (Northeast PA)
and First Florida Bank. A member of the Audit Committee of PPL
and the Nuclear Oversight Committee of PPL Electric Utilities,
Mr. Flood has been a director since 1990; his term ends in
2002.
3
<PAGE>
FRANK A. LONG, 59, is Executive Vice President of PPL and
Executive Vice President and Chief Operating Officer of PPL
Electric Utilities. Mr. Long received a B.S. in Electrical
Engineering from Northeastern University, and joined PPL
Electric Utilities in 1963. Senior Vice President-System Power &
Engineering from 1990 until 1993, he was named to his present
PPL Electric Utilities position in 1993 and to his PPL position
in February 1995. Mr. Long is a member of the Pennsylvania
Electric Association Executive Committee, and a director of the
Smart Discovery Center. Mr. Long has been a director since 1993;
his term ends in 2002.
[Photo of Long]
WILLIAM F. HECHT, 56, is Chairman, President and Chief Executive
Officer of both PPL and PPL Electric Utilities. Mr. Hecht
received a B.S. and M.S. in Electrical Engineering from Lehigh
University, and joined PPL Electric Utilities in 1964. He was
elected President and Chief Operating Officer in 1991 and was
named to his present PPL Electric Utilities position in 1993,
and to his PPL position in February 1995. Mr. Hecht is a
director of a number of civic and charitable organizations. He
is chair of the Executive Committees of PPL and PPL Electric
Utilities and chair of the Corporate Leadership Council, an
internal committee comprised of the senior officers of PPL. Mr.
Hecht has been a director since 1990; his term ends in 2001.
[Photo of Hecht]
STUART HEYDT, 60, is Chief Executive Officer of the Penn State
Geisinger Health System, a not-for-profit corporation involved
in health care and related services. Dr. Heydt, who specializes
in maxillofacial surgery, attended Dartmouth College and
received an M.D. from the University of Nebraska. He is past
president of the American College of Physician Executives and a
director of Bucknell University and Wilkes University. He is
chair of the Audit Committee of PPL and a member of the
Compensation and Corporate Governance and Executive Committees
of PPL and PPL Electric Utilities. Dr. Heydt has been a director
since 1991; his term ends in 2001.
[Photo of Heydt]
DIRECTORS RETIRING AS OF THE ANNUAL MEETING:
The following directors are retiring as of the Annual Meeting. These
directors have provided valued advice to the Company, and we wish them well in
their retirements and future endeavors.
NORMAN ROBERTSON, 72, served as Senior Vice President and Chief
Economist of Mellon Bank N.A., Pittsburgh, Pa., until his
retirement in 1992. Mr. Robertson is an independent economic
advisor to Smithfield Trust Company, a private investment
management firm. He is also an Adjunct Professor of Economics at
Carnegie Mellon University.
[Photo of Robertson]
MARILYN WARE, 56, is Chairman of American Water Works Company,
Inc., Voorhees, N.J., a position she has held since 1988.
American Water Works is the largest water utility holding
company in the country. In addition, she served as a director of
Penn Fuel Gas, Inc. from 1990 to 1998 and is a director of CIGNA
Corp. She attended American University and the University of
Pennsylvania.
[Photo of Ware]
4
<PAGE>
GENERAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Director Attendance at Board Meetings
The Board of Directors held ten meetings during 1999. Each director attended
at least 75% of the meetings held by the Board and its Committees during the
year. The average attendance of directors at the Board and Committee meetings
held during 1999 was 95%.
Compensation of Directors
Directors who are Company employees receive no separate compensation for
service on the Board of Directors or Committees of the Board of Directors.
Non-employee directors receive a retainer of $50,000 per year, of which a
minimum of $32,000 is allocated to a deferred stock account under the
Directors Deferred Compensation Plan ("DDCP"); a fee of $1,000 for attending
Board of Directors meetings, Committee meetings and other meetings at the
Company's request; and a fee of $150 for participating in meetings held by
telephone conference call. Only one attendance fee is paid when the Boards of
PPL and PPL Electric Utilities meet on the same day, and when "dual" committee
meetings are held on the same day. Also, only one retainer is paid for service
on the Boards of both PPL and PPL Electric Utilities.
Non-employee directors may elect to defer all or any part of the retainer
and fees, pursuant to the DDCP. Under this Plan, these directors can defer
compensation into a cash account or a deferred stock account. Payment of these
amounts and applicable interest or dividends can be deferred until after the
director's retirement from the Board of Directors, at which time they can
receive these funds in one or more annual installments for a period of up to
ten years.
Under the terms of the DDCP, any increase in the annual retainer is
automatically allocated to each director's deferred stock account. As with the
DDCP benefits, this additional deferred stock together with applicable
dividends is available to the directors after retirement from the Board, at
which time they can receive this stock in one or more annual installments for
a period of up to ten years.
Stock Ownership
As noted above, all the Common Stock of PPL Electric Utilities is owned by
PPL. No directors or executive officers own any PPL Electric Utilities
preferred stock.
Board Committees
The Board of Directors has four standing committees--the Executive,
Compensation and Corporate Governance, Finance, and Nuclear Oversight
Committees. Each non-employee director usually serves on one or more of these
and PPL's Board committees. (PPL's committees include the Executive, Audit,
Compensation and Corporate Governance and Finance Committees. PPL's Audit
Committee provides audit oversight to PPL Electric Utilities.) All but the
Executive Committee are composed entirely of directors who are not Company
employees.
Executive Committee. The Executive Committee exercises during the periods
between Board meetings all of the powers of the Board of Directors, except
that the Executive Committee may not elect directors, change the membership of
or fill vacancies in the Executive Committee, fix the compensation of the
directors, change the Bylaws, or take any action restricted by the
Pennsylvania Business Corporation Law or the Bylaws (including actions
committed to another Board committee). The Executive Committee of PPL Electric
Utilities met twice in 1999. The members of the Executive Committee for both
the Company and PPL are Mr. Hecht (chair), Dr. Heydt, and Messrs. Deaver,
Gates and Robertson.
Compensation and Corporate Governance Committee. The principal functions of
the Compensation and Corporate Governance Committee are to review and evaluate
at least annually the performance of the chief executive officer and other
senior officers of the Company, and to set their remuneration, including
incentive awards; to review the fees paid to outside directors for their
services on the Board of Directors and its Committees; and to review
management's succession planning. For those individuals who are senior
officers of both the Company and PPL, the Compensation and Corporate
Governance Committees of both companies act jointly to set remuneration for
services to both companies. Another principal committee function is to develop
and
5
<PAGE>
review criteria for the qualifications of Board members, to establish and
administer programs for evaluating the performance of Board members and to
identify and recommend to the Board of Directors candidates for election to
the Board. This committee met once in 1999. The members of the Compensation
and Corporate Governance Committee for both the Company and PPL are Mr. Deaver
(chair), Messrs. Gates and Robertson and Dr. Heydt.
Nominees for directors may be proposed by Shareowners in accordance with the
procedures set forth in the Bylaws. Recommendations for the 2001 Annual
Meeting must be received by seventy-five days prior to the 2001 Annual
Meeting. Shareowners interested in recommending nominees for directors should
submit their recommendations in writing to the Chair of the Compensation and
Corporate Governance Committee, c/o Secretary, Two North Ninth Street,
Allentown, Pennsylvania 18101.
Finance Committee. The principal functions of the Finance Committee are to
approve specific Company financings and corporate financing policies, and to
review the Company's annual capital and operating budgets, financing plans and
overall financial strategy. The Finance Committee met five times during 1999.
The members of the Finance Committee for both the Company and PPL are Mr.
Gates (chair), Messrs. Deaver and Robertson, and Ms. Ware.
Nuclear Oversight Committee. The principal functions of the Nuclear
Oversight Committee are to assist the Board of Directors in the fulfillment of
its responsibilities for oversight of the Company's nuclear function, to
advise Company management on nuclear matters, and to provide advice and
recommendations to the Board of Directors concerning the future direction of
the Company and management performance related to the nuclear function. The
Nuclear Oversight Committee met three times in 1999. The members of the
Nuclear Oversight Committee are Dr. Bernthal (chair), and Messrs. Flood and
Gates.
Retirement Plans for Executive Officers
PPL Electric Utilities' officers upon retirement are eligible for benefits
under the PPL Electric Utilities Retirement Plan and the Supplemental
Executive Retirement Plan ("SERP"). The following table shows the estimated
annual retirement benefits for executive officers payable under these Plans:
Estimated Annual Retirement Benefits
at Normal Retirement Age of 65
Officers Hired Before 1/1/98
<TABLE>
<CAPTION>
Years of Service
Five-Year
Average
Annual
Compensation 15 Years 20 Years 25 Years 30 Years
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 300,000 104,304 144,804 159,804 174,804
350,000 124,554 171,804 189,304 206,804
400,000 144,804 198,804 218,804 238,804
450,000 165,054 225,804 248,304 270,804
500,000 185,304 252,804 277,804 302,804
550,000 205,554 279,804 307,304 334,804
600,000 225,804 306,804 336,804 366,804
650,000 246,054 333,804 366,304 398,804
700,000 266,304 360,804 395,804 430,804
750,000 286,554 387,804 425,304 462,804
800,000 306,804 414,804 454,804 494,804
850,000 327,054 459,000 484,304 526,804
900,000 347,304 468,804 513,804 558,804
950,000 367,554 495,804 543,304 590,804
1,000,000 405,000 540,000 590,000 640,000
1,050,000 425,250 567,000 619,500 672,000
1,100,000 445,500 594,000 649,000 704,000
1,150,000 465,750 621,000 678,500 736,000
1,200,000 486,000 648,000 708,000 768,000
</TABLE>
6
<PAGE>
Benefits under both the Retirement Plan and the SERP benefit formulas are
based on length of service and the average compensation for the highest 60
consecutive months in the final 120 months of employment. For purposes of
calculating benefits under the Retirement Plan, the compensation used is base
salary less amounts deferred pursuant to the Officers Deferred Compensation
Plan. Base salary, including any amounts deferred, is listed in the Summary
Compensation Table which follows. (Of the officers listed in that Table, Mr.
Hecht deferred $52,000 of compensation for each of 1997, 1998 and 1999, and
Mr. Long deferred $31,200 for each of 1997, 1998 and 1999.) For purposes of
calculating benefits under the SERP, the compensation used is base salary,
cash bonus, and, in some cases, the value of any restricted stock grant for
the year in which earned, as listed in the Table, as well as dividends paid on
restricted stock.
Benefits payable under the Retirement Plan are subject to limits set forth
in the Internal Revenue Code and are not subject to any deduction for Social
Security benefits or other offset. They are computed on the basis of the life
annuity form of pension at the normal retirement age of 65. Benefits payable
under the SERP are computed on the same basis; are offset by Retirement Plan
benefits and the maximum Social Security benefit payable at 65; and are
reduced for retirement prior to age 60.
As of January 1, 2000, the years of credited service under the Retirement
Plan for Messrs. Hecht, Long, Biggar, Byram and Grey were 29.8, 32.4, 25.2,
23.3 and 4.7, respectively. The years of credited service under the SERP for
each of these officers are three years less than under the Retirement Plan
(except in the case of Mr. Byram, who is entitled to nine months of additional
credited service under the SERP, and Mr. Grey, who is entitled to 15.4 years
of additional credited service).
For officers hired on or after January 1, 1998, benefits under the SERP are
based on a new formula, as follows: (i) restricted stock grants are not
included in compensation for purposes of calculating benefits under the SERP;
(ii) the percentage of pay provided as a retirement benefit is changed from
2.7% for the first 20 years of service plus 1.0% for the next 10 years, to
2.0% for the first 20 years and 1.5% for the next 10 years; and (iii) credit
for years of service will commence as of the employee's date of hire instead
of at age 30.
The following table shows the estimated annual retirement benefits for
executive officers payable under the new SERP formula:
Estimated Annual Retirement Benefits
at Normal Retirement Age of 65
Officers Hired On or After 1/1/98
<TABLE>
<CAPTION>
Years of Service
Five-Year
Average
Annual
Compensation 15 Years 20 Years 25 Years 30 Years
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 300,000 90,000 120,000 144,804 165,000
350,000 105,000 140,000 166,250 192,500
400,000 120,000 160,000 190,000 220,000
450,000 135,000 180,000 213,750 247,500
500,000 150,000 200,000 237,500 275,000
550,000 165,000 220,000 261,250 302,500
600,000 180,000 240,000 285,000 330,000
650,000 195,000 260,000 308,750 357,500
700,000 210,000 280,000 332,500 385,000
750,000 225,000 300,000 356,250 412,500
800,000 240,000 320,000 380,000 440,000
850,000 255,000 340,000 403,750 467,500
900,000 270,000 360,000 427,500 495,000
950,000 285,000 380,000 451,250 522,500
1,000,000 300,000 400,000 475,000 550,000
1,050,000 315,000 420,000 498,750 577,500
1,100,000 330,000 440,000 522,500 605,000
1,150,000 345,000 460,000 546,250 632,500
1,200,000 360,000 480,000 570,000 660,000
</TABLE>
7
<PAGE>
For existing officers, effective January 1, 1998, benefits under the SERP
are calculated under the greater of the old formula or the new formula, except
that compensation for purposes of the old formula includes restricted stock
grants only to the extent earned through December 31, 2001 and will be frozen
as of December 31, 2001, and compensation for purposes of the new formula
includes restricted stock grants only to the extent earned through December
31, 1997.
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation for the Chief Executive
Officer and the next four most highly compensated executive officers for the
last three fiscal years, for service for both PPL Electric Utilities and PPL.
Compensation amounts for these officers are the same as those shown in PPL's
Proxy Statement; they are not additive. Messrs. Hecht and Long also served as
directors but received no separate remuneration in that capacity.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------------------------------------
Other Annual Restricted All Other
Name and Salary/1 Bonus/1 Compensation/2 Stock Award/3 Options Compensation/4
Principal Position Year / ($) / ($) / ($) / ($) (#) / ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William F.
Hecht 1999 689,178 448,630 0 258,263 155,550 5,826
Chairman, President and 1998 644,604 267,998 0 193,320 0 6,001
Chief Executive Officer 1997 609,550 107,360 0 281,435 0 4,704
Frank A. Long 1999 464,651 248,357 0 150,209 63,670 5,869
Executive Vice President 1998 439,735 157,872 0 115,290 0 6,048
and Chief Operating Officer 1997 414,704 85,698 0 167,599 0 4,750
Robert G. Byram 1999 291,796 119,136 11,230 80,763 27,010 5,074
Senior Vice President 1998 279,847 81,200 10,770 62,910 0 5,185
and Chief Nuclear 1997 264,967 50,880 0 91,630 0 3,916
Officer
Robert J. Grey 1999 291,796 119,136 0 80,763 27,010 3,894
Senior Vice President, 1998 279,674 81,200 0 62,910 0 3,907
General Counsel and 1997 249,900 48,000 0 86,488 0 2,682
Secretary
John R. Biggar 1999 259,082 114,080 1,000 71,888 19,060 4,764
Senior Vice President and 1998 196,571 57,515 750 43,470 0 4,850
Chief Financial Officer 1997 160,528 16,129 0 32,491 0 3,582
</TABLE>
/1 /Salary and bonus data include deferred compensation.
/2/Includes longevity pay (which is compensation for vacation earned, but not
taken) and fees earned by Mr. Biggar for serving as a director of Safe
Harbor Water Power Corporation, an affiliate of PPL Electric Utilities.
/3/The dollar value of restricted common stock awards was calculated by
multiplying the number of shares awarded by the closing price per share on
the date of the grant. As of December 31, 1999, the officers listed in this
table held the following number of shares of restricted common stock, with
the following values: Mr. Hecht--25,240 shares ($577,365); Mr. Long--15,040
shares ($344,040); Mr. Byram--8,350 shares ($191,006); Mr. Grey--7,970
shares ($182,314); and Mr. Biggar--3,760 shares ($86,010). These year-end
data do not include awards made in January 2000 for 1999 performance, or
awards which had originally been restricted and for which the restriction
periods have lapsed or been lifted. Dividends are paid currently on
restricted stock awards. All outstanding restricted stock awards to these
individuals have a restriction period of three years.
/4/Includes Company contributions to the Officers' Deferred Savings Plan and
the ESOP accounts.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1999 to
the named executive officers.
<TABLE>
<CAPTION>
Individual Grants/1/ Grant Date Value
--------------------------- ----------------
Number of % of Total
Securities Options Granted
Underlying to Employees in Exercise or Expiration Grant Date/2
Name Options Granted 1999 Base Price Date / Present Value
- ---- --------------- --------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
W. F. Hecht............. 155,550 14.9 $26.8438 4/23/09 510,204
F. A. Long.............. 63,670 9.0 26.8438 4/23/09 208,838
R. G. Byram............. 27,010 3.8 26.8438 4/23/09 88,593
R. J. Grey.............. 27,010 3.8 26.8438 4/23/09 88,593
J. R. Biggar............ 19,060 2.7 26.8438 4/23/09 62,517
</TABLE>
/1 /Exercisable in three equal annual installments beginning April 23, 2000.
/2 /Values indicated are an estimate based on a modified Binomial option
pricing model. Although executives risk forfeiting these options under
certain circumstances, these risks are not factored into the calculated
values. The actual value realized will be determined by the excess of the
stock price over the exercise price on the date the option is exercised.
There is no certainty that the actual value realized will be at or near the
value estimated by the modified Binomial option pricing model.
Assumptions used for the modified Binomial model are as follows:
<TABLE>
<S> <C>
Risk-free interest rate............. 5.61%
Volatility.......................... 16.19%
Dividend yield...................... 6.60%
Time of exercise.................... 10 years
</TABLE>
CHANGE IN CONTROL ARRANGEMENTS
PPL has entered into agreements with each of the named executive officers,
which agreements provide benefits to the officers upon certain terminations of
employment following a change in control of PPL (as such term is defined in
the agreements). The benefits provided under these agreements replace any
other severance benefits provided to these officers by PPL, or any prior
severance agreement.
Each of the agreements continues in effect until December 31, 2000, and the
agreements generally are automatically extended for additional one-year
periods. Upon the occurrence of a change in control, the agreements will
expire no earlier than thirty-six months after the month in which the change
in control occurs. Each agreement provides that the officer will be entitled
to the severance benefits described below if PPL terminates the officer's
employment following a change in control for any reason other than death,
disability, retirement or "cause," or if the officer terminates employment for
"good reason" (as such terms are defined in the agreements).
The benefits consist of a lump sum payment equal to three times the sum of
(a) the officer's base salary in effect immediately prior to date of
termination, or if higher, immediately prior to the first occurrence of an
event or circumstance constituting good reason, and (b) the highest annual
bonus in respect of the last three fiscal years ending immediately prior to
the fiscal year in which the change in control occurs, or if higher, the
fiscal year immediately prior to the fiscal year in which first occurs an
event or circumstance constituting good reason. (This bonus amount would
include the value of restricted stock awards for calendar years prior to
1999.) In addition, under the terms of each agreement, PPL would provide the
officer and dependents with continuation of welfare benefits (reduced to the
extent the officer receives comparable benefits), and would pay the officer
unpaid incentive compensation that has been allocated or awarded, a lump sum
payment having an actuarial present value equal to the additional pension
benefits the officer would have received had the officer continued to be
employed by PPL for an additional thirty-six months, outplacement services for
up to three years and a gross-up payment for any excise tax imposed under the
Internal Revenue Code. In addition, under the agreements, PPL would provide
post-retirement health care and life insurance benefits to officers who would
have become eligible for such benefits within the thirty-six month period
following the change in control.
9
<PAGE>
In addition, in the event of a change in control or certain circumstances
that may lead to a change in control, the Compensation and Corporate
Governance Committee of the Board of Directors may change or eliminate the
restriction period applicable to any outstanding restricted stock awards under
the Incentive Compensation Plan.
JOINT REPORT OF THE COMPENSATION AND CORPORATE
GOVERNANCE COMMITTEES REGARDING EXECUTIVE COMPENSATION
GENERALLY
PPL (the "Company") is the parent holding company of PPL Electric Utilities
Corporation ("PPL Electric Utilities"), and PPL Electric Utilities is its
principal subsidiary. The members of the Company's Compensation and Corporate
Governance Committee--all independent outside directors--and Board of
Directors also serve in the same capacity for PPL Electric Utilities. Certain
senior officers of the Company are also senior officers of PPL Electric
Utilities. For those individuals, references below to the Committee and Board
of Directors refer to the Committee and Board of Directors of both the Company
and PPL Electric Utilities and discussions of their compensation include
compensation earned for services to both the Company and PPL Electric
Utilities.
During 1999, the Committee reviewed and evaluated the performance and
leadership of the Chief Executive Officer and the other executive officers who
are listed in the Summary Compensation Table in the Company's Proxy Statement
or the PPL Electric Utilities Information Statement ("senior officers"). The
Committee established the compensation and benefit practices for these
individuals as senior officers of the Company and its subsidiaries, including
PPL Electric Utilities and PPL Global, Inc. (a subsidiary of the Company which
invests in and develops world-wide power projects) ("PPL Global"). Except for
Mr. Champagne, these individuals are also executive officers of PPL Electric
Utilities./1/
For 1999, the Company had in place two major components of executive
compensation for the senior officers--base salary and incentive compensation.
Base salaries reflect the value of the various Company positions relative to
similar positions--both within the Company and in other companies--and
individual executive performance. Incentive compensation is based on corporate
performance./2/ For 1999, the incentive program had three separate elements.
Under the Company's Short-Term Incentive Plan, cash awards were made to the
senior officers based on the achievement of key corporate financial and
operational goals. Under the Company's Incentive Compensation Plan, restricted
shares of the Company's common stock were granted to the senior officers based
on the achievement of certain strategic goals designed to position the Company
for success in the new competitive environment. Incentive goals and
performance targets for these cash and stock awards were developed by the
Committee, and all awards were granted by the Committee. Finally, under the
Incentive Compensation Plan, the Committee granted stock options to the senior
officers. Because these options give officers the right to buy a fixed number
of shares of Company stock in the future at an exercise price based on the
market price on the grant date, the option value is tied directly to increases
in the stock price and these options closely align management and shareowner
interests.
- -------
/1 /Mr. Champagne has no position with PPL Electric Utilities, but is an
executive officer of the Company by virtue of his position as President of
PPL Global, Inc.
/2 /Because of his position as President of PPL Global, Inc., Mr. Champange's
incentive compensation is based on separate goals and performance targets
established for that position.
10
<PAGE>
BASE SALARIES
In general, the Committee's objective is to provide salary levels that are
sufficiently competitive with comparable companies to enable the Company to
attract and retain high-quality executive talent. To meet this objective, the
Committee regularly reviews salary information for similar companies provided
by outside compensation consultants. In addition, the Committee annually
reviews the performance of each executive to determine the appropriate level
of base salary adjustment for that individual.
In January 1999, the Committee reviewed salary ranges for the senior
officers by comparing these salary levels with levels within the utility
industry generally, and, more specifically, with executive compensation levels
at 15 comparable utilities. All of the comparison companies were included in
the EEI (Edison Electric Institute) Index of Investor-owned Electric
Utilities. The 15 utilities used for comparison purposes were selected based
on their similarity to PPL Electric Utilities in terms of annual revenues and
other measures of size.
After reviewing salary data for executive positions at comparable utilities,
the Committee reviewed the actual salaries and performance appraisals of each
of the senior officers. In the case of the Chief Executive Officer, the
Committee considered the directors' individual appraisals of his performance
in determining his salary. The Committee then solicited input and
recommendations from the Chief Executive Officer regarding the performance and
individual salaries of the other senior officers.
Upon completion of this review, the Committee established the 1999 salaries
of the senior officers. As of January 1999, Mr. Hecht's total compensation was
about 24.2% less than the average total compensation of the chief executive
officers of the comparable companies. Also, the total compensation of the
senior executives as a group was approximately 20.9% less than the average
paid to their counterparts at these companies. Considering this information
and individual performance, the Committee made appropriate salary adjustments,
effective as of January 1, 1999./3/
INCENTIVE AWARDS
The incentive awards component of executive compensation is based on the
Company's achievement of specific corporate financial, operational and
strategic goals and increases in shareowner value. This incentive program
achieves the Company's objective of placing a large portion of executive
compensation "at risk" based on such corporate performance. The incentive
awards are made in the form of cash, restricted Company stock and stock
options.
Cash Awards
Under the Company's Short-Term Incentive Plan, cash awards are made to
officers for the achievement of specific, independent goals established for
each calendar year. For 1999, the following award targets as a percentage of
base salary were established for each officer based on accountability level:
Chief Executive Officer--60%; Executive Vice President--50%; and Sr. Vice
President--40%.
Annual awards are determined by applying these target percentages to the
percentage of goal attainment. The performance goals for each year are
established by the Committee, and the Committee reviews actual results at each
year-end to determine the appropriate goal attainment percentage to apply to
the salary targets.
- -------
/3/Mr. Champagne became President of PPL Global on May 24, 1999, and his
salary was established effective on that date based on the Committee's May
1999 review of salaries for similar subsidiary positions in both regulated
and non-regulated companies.
11
<PAGE>
The goal categories for 1999 were related to specific financial and
operational performance measures for the Company and its subsidiaries,
successful completion of PPL Electric Utilities' securitization program,
business growth, acquisition of additional domestic generation and progress in
positioning the Company and its subsidiaries for success in the competitive
market.
The weightings for each of these general categories varied by the level of
the individual officers to reflect the different levels of influence they have
on attainment of the goals, as follows:
<TABLE>
<CAPTION>
Goal Category
---------------------------------------------------
Operational-- Operational--
Officer Level Financial PPL Electric Utilities Other Subsidiaries
------------- --------- ---------------------- ------------------
<S> <C> <C> <C>
Chief Executive Officer..... 45% 30% 25%
Executive Vice President.... 45 30 25
Sr. Vice President.......... 30 40 30
</TABLE>
When the level of goal attainment in each of the above categories was
measured at the end of the year and the category weightings shown above were
multiplied by the annual award target for each position, each officer's cash
award was determined for 1999 performance.
Restricted Stock Awards
Under the Company's Incentive Compensation Plan, restricted Company stock
also is made available to officers based on the achievement of strategic
objectives designed to position the Company to continue to provide value to
its shareowners. Goals for 1999 were related to progress in the Company's
ongoing corporate realignment project, pursuit of new domestic generation
opportunities, business growth in energy marketing and succession planning.
Annual awards are based on the achievement of these strategic goals. The 1999
award targets as a percentage of base salary varied by accountability level,
as follows: Chief Executive Officer--40%; Executive Vice President--35%; and
Sr. Vice President--30%.
Awards are made in the form of restricted stock equivalent to the dollar
value of the percentage applied to base pay in effect at the end of the year.
This stock award encourages increased stock ownership on the part of the
officers and aligns the interests of management and shareowners.
The Committee determines the applicable restriction period for the stock at
the time of grant, which, under the terms of the Incentive Compensation Plan,
must be at least three years and not more than ten years from the date of
grant. That is, the officer can be divested of this stock during the
restriction period if he or she terminates employment with the Company. The
Plan also provides that, upon death or disability of an officer, the
outstanding restricted stock awards made to that officer will be prorated. In
such cases, the Committee may provide the officer with the entire award rather
than the prorated portion. In this way, grants of restricted stock serve as an
incentive for senior management to continue their employment with the Company
and, therefore, contribute to continuity in top management. In the past, the
grants of restricted stock to the senior officers under the Incentive
Compensation Plan have been restricted for a period of three years.
Stock Option Awards
Under the Company's Incentive Compensation Plan, as amended and approved by
shareowners at the 1999 Annual Meeting, the Committee in 1999 for the first
time granted officers options to purchase shares of the Company's common stock
in the future. Because the exercise price for these options is based on the
market price of the stock at the time of the grant, the ultimate value
received by the option holders is directly tied to increases in the stock
price and, therefore, stock options serve to closely link the interests of
management and shareowners and motivate executives to make decisions that will
serve to increase the long-term total return to shareowners. Additionally, the
option grants include vesting and termination provisions which the Committee
believes will encourage the option holders to remain employees of the Company.
As with the cash and restricted stock awards discussed above, the stock option
grants varied by accountability level based on similar award targets.
12
<PAGE>
* * * * * *
The 1999 incentive awards made to the five most highly compensated executive
officers are shown on pages 8 and 9. The Committee based the cash and
restricted stock awards for these officers solely on the corporate goals
achieved. In January 2000, the Committee reviewed performance achieved during
1999 for the financial and operational goals under the Short-Term Incentive
Plan. During 1999, the Company achieved 102% to 107% of these goals. As a
result of the weighting system described above, the senior officers received
the following incentive cash awards as a percent of base salary: Mr. Hecht--
64.1%; Mr. Long--53.4%; Mr. Biggar--43.9%; Mr. Byram--40.8%; and Mr. Grey--
40.8%. Mr. Champagne received a 1999 short-term incentive award of 83.6% of
base salary, based on separate goals related to PPL Global's business.
In January 2000, the Committee also reviewed the Company's performance on
the established strategic goals under the Incentive Compensation Plan. During
1999, the Company achieved 95% of these goals. Applying the award targets set
forth above, the senior officers received the following restricted stock
awards as a percent of base salary: Mr. Hecht--38.0%; Mr. Long--33.3%; Mr.
Biggar--28.5%; Mr. Byram--28.5%; and Mr. Grey--28.5%. Mr. Champagne received a
1999 strategic incentive award of 31.9% of base salary, based on separate
goals related to PPL Global's business.
Finally, the Committee made the following awards of non-qualified stock
options in April 1999 under the Incentive Compensation Plan: Mr. Hecht--
155,550 options; Mr. Long--63,670 options; Mr. Biggar--19,060 options; Mr.
Byram--27,010 options; Mr. Champagne--18,230 options; and Mr. Grey--27,010
options.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In establishing Mr. Hecht's 1999 salary, the Committee reviewed the salaries
of the chief executive officers of the 15 comparison utilities referenced
above. In conducting this review, the Committee concluded that Mr. Hecht's
1998 salary was below the average earned by incumbents in similar positions at
those utilities. As a result of this review and Mr. Hecht's performance, the
Committee set his 1999 salary at $700,000, effective January 1, 1999.
Based on the Company's 1999 performance on the specific corporate financial
and operational goals discussed above, Mr. Hecht received a cash award equal
to approximately 64.1% of his salary. Based on the Company's 1999 performance
on the strategic goals discussed above, Mr. Hecht received a restricted stock
award equal to approximately 38.0% of his salary. In addition, in 1999 Mr.
Hecht was granted 155,550 stock options.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
provides that publicly held corporations may not deduct in any taxation year
certain compensation in excess of $1,000,000 paid to the chief executive
officer and the next four most highly compensated executive officers. In this
regard, shareowners at the 1999 Annual Meeting approved (i) the amendment of
the Company's Incentive Compensation Plan to enable the Company to make stock
option awards under that Plan that are deductible under Section 162(m); and
(ii) the adoption of the Short-Term Incentive Plan under which cash awards to
officers can be deductible under Section 162(m). The Committee will continue
to seek ways to limit the impact of Section 162(m). However, the Committee
believes that the tax deduction limitation should not compromise the Company's
ability to establish and implement incentive programs that support the
compensation objectives discussed above. Accordingly, achieving these
objectives and maintaining required flexibility in this regard may result in
compensation that is not deductible for federal income tax purposes.
The Compensation and Corporate
Governance Committee
E. Allen Deaver, Chair
Elmer D. Gates
Stuart Heydt
Norman Robertson
13
<PAGE>
INDEPENDENT ACCOUNTANTS
Upon the recommendation of PPL's Audit Committee, which is composed of
directors who are not employees of the Company or its affiliates, the Board of
Directors of PPL appointed PricewaterhouseCoopers LLP to serve as independent
accountants for the year ending December 31, 2000, for PPL and its
subsidiaries, including the Company. This appointment is subject to
reconsideration by the Board if it is not ratified by the Shareowners of PPL.
MISCELLANEOUS
The Board of Directors is not aware of any other matters to be presented for
action at the meeting. If any other matter requiring a vote of the Shareowners
should arise, it is intended that the persons named as proxies will vote in
accordance with their best judgment.
PROPOSALS FOR 2001 ANNUAL MEETING
To be included in the Proxy material for the 2001 Annual Meeting, any
proposal intended to be presented at that Meeting by a Shareowner must be
received by the Secretary no later than November 15, 2000. To be properly
brought before the Meeting, any proposal must be received by seventy-five days
prior to the 2001 Annual Meeting.
ANNUAL FINANCIAL STATEMENTS
The Company's annual financial statements and related management discussion
are appended to this document.
By Order of the Board of Directors.
Robert J. Grey
Secretary
March 13, 2000
14
<PAGE>
Schedule A
[PP & L LOGO]
PPL Electric Utilities Corporation
1999 Financial Statements
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Glossary of Terms and Abbreviations....................................... A-1
Review of the Financial Condition and Results of Operations............... A-3
Report of Independent Accountants......................................... A-14
Management's Report on Responsibility for Financial Statements............ A-15
Consolidated Statement of Income.......................................... A-16
Consolidated Statement of Cash Flows...................................... A-17
Consolidated Balance Sheet................................................ A-18
Consolidated Statement of Shareowner's Common Equity...................... A-20
Consolidated Statement of Preferred Stock................................. A-21
Consolidated Statement of Company-Obligated Mandatorily Redeemable
Preferred Securities..................................................... A-22
Consolidated Statement of Long-Term Debt.................................. A-23
Notes to Financial Statements............................................. A-24
Selected Financial and Operating Data..................................... A-39
Executive Officers of PPL Electric Utilities Corporation.................. A-40
Shareowner and Investor Information....................................... A-41
Quarterly Financial Data.................................................. A-43
</TABLE>
<PAGE>
GLOSSARY OF TERMS AND ABBREVIATIONS
AFUDC (Allowance for Funds Used During Construction)--the cost of equity and
debt funds used to finance construction projects that is capitalized as part
of construction cost.
Atlantic--Atlantic City Electric Company.
BG&E--Baltimore Gas & Electric Company.
Burns Mechanical--Burns Mechanical, Inc., a PPL Spectrum unregulated
subsidiary specializing in mechanical contracting and engineering.
CERCLA--Comprehensive Environmental Response, Compensation and Liability
Act.
Clean Air Act (Federal Clean Air Act Amendments of 1990)--legislation
enacted to address certain environmental issues including acid rain, ozone and
toxic air emissions.
CTC--competitive transition charge on customer bills to recover allowable
transition costs under the Customer Choice Act.
Customer Choice Act (Pennsylvania Electricity Generation Customer Choice and
Competition Act)--legislation enacted to restructure the state's electric
utility industry to create retail access to a competitive market for
generation of electricity.
DEP--Pennsylvania Department of Environmental Protection.
DOE--Department of Energy.
DRIP (Dividend Reinvestment Plan)--program available to shareowners of PPL
common stock and PPL Electric Utilities preferred stock to reinvest dividends
in PPL common stock instead of receiving dividend checks.
ECR (Energy Cost Rate)--a tariff applied to PUC-jurisdictional customers to
recover fuel and other energy costs. Effective January 1997, energy costs were
rolled into base rates and the ECR was discontinued.
EGS--electric generation supplier.
EITF (Emerging Issues Task Force)--an organization that aids the FASB in
identifying emerging issues that may require FASB action.
Emel--Empresas Emel, S.A., a Chilean electric distribution holding company.
EMF--electric and magnetic fields.
Energy Act (Energy Policy Act of 1992)--federal legislation passed by
Congress to promote competition in the electric energy market for bulk power.
Energy Marketing Center--business unit within PPL Electric Utilities
responsible for marketing and trading wholesale energy.
EPA--Environmental Protection Agency.
EPS--Earnings per share.
ESOP--Employee Stock Ownership Plan.
FASB (Financial Accounting Standards Board)--a rulemaking organization that
establishes financial accounting and reporting standards.
FERC (Federal Energy Regulatory Commission)--federal agency that regulates
interstate transmission and wholesale sales of electricity and related
matters.
FGD--flue gas desulfurization equipment installed at coal-fired power plants
to reduce sulfur dioxide emissions.
H.T. Lyons--H.T. Lyons, Inc., a PPL unregulated subsidiary specializing in
mechanical contracting and engineering.
IBEW--International Brotherhood of Electrical Workers.
ISO--Independent System Operator.
ITC--intangible transition charge on customer bills to recover intangible
transition costs associated with securitizing stranded costs under the
Customer Choice Act.
ITP--intangible transition property created under the Customer Choice Act,
which represents the right to recover intangible transition costs through the
ITC.
JCP&L--Jersey Central Power & Light Company.
McCarl's--McCarl's Inc., a PPL unregulated subsidiary specializing in
mechanical contracting.
McClure--McClure Company, a PPL unregulated subsidiary specializing in
mechanical contracting and engineering.
MOU--Memorandum of Understanding.
MSHA--Mine Safety and Health Administration.
NOx--nitrogen oxide.
NPDES--National Pollutant Discharge Elimination System.
NRC (Nuclear Regulatory Commission)--federal agency that regulates operation
of nuclear power facilities.
NUG (Non-Utility Generator)--generating plants not owned by regulated
utilities. If the NUG meets certain criteria, its electrical output must be
purchased by public utilities under PURPA.
OSM--United States Office of Surface Mining.
OTR--Northeast Ozone Transport Region.
PCB (Polychlorinated Biphenyl)--additive to oil used in certain electrical
equipment up to the late-1970s. Now classified as a hazardous chemical.
A-1
<PAGE>
PJM (PJM Interconnection, LLC)--operates the electric transmission network
and electric energy market in the mid-Atlantic region of the U.S.
PLR--Provider of last resort, referring to PPL Electric Utilities
Corporation providing electricity to retail customers within its delivery
territory who have chosen not to shop for electricity under the Electric
Choice Program.
PPL--PPL Corporation, the parent holding company of PPL Electric Utilities,
PPL Global and other subsidiaries.
PPL Capital Funding--PPL Capital Funding, Inc., a PPL financing subsidiary.
PP&L Capital Trust--a Delaware statutory business trust created to issue
Preferred Securities, whose common stock is held by PPL Electric Utilities.
PP&L Capital Trust II--a Delaware statutory business trust created to issue
Preferred Securities, whose common stock is held by PPL Electric Utilities.
PPL Electric Utilities--PPL Electric Utilities Corporation
PPL Electric Utilities' Mortgage--PPL Electric Utilities Corporation's
Mortgage and Deed of Trust, dated October 1, 1945, as supplemented.
PPL EnergyPlus--PPL EnergyPlus, LLC, a PPL Electric Utilities unregulated
subsidiary which supplies energy and energy services in newly deregulated
markets.
PPL Gas Utilities--PPL Gas Utilities Corporation, a PPL regulated subsidiary
specializing in natural gas distribution, transmission and storage services,
and the sale of propane.
PPL Global--PPL Global, Inc., a PPL unregulated subsidiary which invests in
and develops world-wide power projects.
PPL Montana--PPL Montana Holdings LLC, a PPL subsidiary which generates
electricity for wholesale and retail customers in Montana and the Northwest.
PPL Spectrum--PPL Spectrum, Inc., a PPL unregulated subsidiary which offers
energy-related products and services.
PP&L Transition Bond Company--PP&L Transition Bond Company LLC, a wholly-
owned subsidiary of PPL Electric Utilities formed to issue transition bonds
under the Customer Choice Act.
Preferred Securities--Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely company debentures (issued by
two Delaware statutory business trusts).
PRP--potentially responsible parties under Superfund.
PUC (Pennsylvania Public Utility Commission)--state agency that regulates
certain ratemaking, services, accounting, and operations of Pennsylvania
utilities.
PUC Final Order--final order issued by the PUC on August 27, 1998, approving
the settlement of PPL Electric Utilities' restructuring proceeding.
PUHCA--Public Utility Holding Company Act of 1935.
PURPA (Public Utility Regulatory Policies Act of 1978)--legislation passed
by Congress to encourage energy conservation, efficient use of resources, and
equitable rates.
PURTA--Public Utility Realty Tax Act.
SBRCA--Special Base Rate Credit Adjustment.
SCR--selective catalytic reduction.
SEC--Securities and Exchange Commission.
SER--Schuylkill Energy Resources, Inc.
SFAS (Statement of Financial Accounting Standards)--accounting and financial
reporting rules issued by the FASB.
SIP--State Implementation Plan.
SO\\2\\--sulfur dioxide.
Superfund--federal and state environmental legislation that addresses
remediation of contaminated sites.
Tolling--an arrangement whereby a third party power marketer supplies fuel
to a power plant and receives the plant's electrical output in return for
paying a pre-established tolling fee.
UGI--UGI Corporation.
VEBA (Voluntary Employee Benefit Association Trust)--trust accounts for
health and welfare plans for future payments to employees, retirees or their
beneficiaries.
Western Mass. Holdings--Western Massachusetts Holdings, Inc., a PPL
unregulated subsidiary specializing in mechanical contracting and engineering.
Year 2000--a set of date-related problems that may be experienced by
software systems or applications.
A-2
<PAGE>
REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PPL ELECTRIC
UTILITIES CORPORATION
On February 14, 2000, (i) PP&L, Inc. filed Articles of Amendment with the
Pennsylvania Department of State (the "Department of State") to change its
name to PPL Electric Utilities Corporation ("PPL Utilities"), effective
immediately; (ii) PP&L EnergyPlus Co., LLC, an unregulated subsidiary of PPL
Utilities which sells energy and energy services to newly deregulated markets,
filed Articles of Amendment with the Department of State to change its name to
PPL EnergyPlus, LLC, effective immediately; and (iii) CEP Group, Inc., an
unregulated subsidiary of PPL Utilities which, together with its subsidiaries,
engages principally in financing and cash management activities, filed
Articles of Amendment with the Department of State to change its name to PPL
Energy Funding Corporation, effective immediately.
PPL Electric Utilities is an operating public utility which provides
electricity delivery service in eastern and central Pennsylvania and markets
wholesale electricity in the United States and Canada. PPL EnergyPlus, a PPL
Electric Utilities subsidiary, sells energy and energy services to deregulated
markets. PPL Electric Utilities is the principal subsidiary of PPL
Corporation.
Terms and abbreviations appearing in the Review of the Financial Condition
and Results of Operations are explained in the glossary.
Forward-looking Information
Certain statements contained in these financial statements concerning
expectations, beliefs, plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other
than statements of historical facts are "forward-looking statements" within
the meaning of the federal securities laws. Although PPL Electric Utilities
believes that the expectations and assumptions reflected in these statements
are reasonable, there can be no assurance that these expectations will prove
to have been correct. These forward-looking statements involve a number of
risks and uncertainties, and actual results may differ materially from the
results discussed in the forward-looking statements. In addition to the
specific factors discussed in this Review of Financial Condition and Results
of Operations, the following are among the important factors that could cause
actual results to differ materially from the forward-looking statements: state
and federal regulatory developments; new state or federal legislation;
national or regional economic conditions; market demand and prices for energy,
capacity and fuel; weather variations affecting customer energy usage;
competition in retail and wholesale power markets; the effect of any business
or industry restructuring; PPL Electric Utilities' profitability and
liquidity; new accounting requirements or new interpretations or applications
of existing requirements; operating performance of plants and other
facilities; environmental conditions and requirements; system conditions and
operating costs; performance of new ventures; and PPL Electric Utilities'
commitments and liabilities. Any such forward-looking statements should be
considered in light of such important factors and in conjunction with PPL
Electric Utilities' other documents on file with the SEC.
New factors that could cause actual results to differ materially from those
described in forward-looking statements emerge from time to time, and it is
not possible for PPL Electric Utilities to predict all of such factors, or the
extent to which any such factor or combination of factors may cause actual
results to differ from those contained in any forward-looking statement. Any
forward-looking statement speaks only as of the date on which such statement
is made, and PPL Electric Utilities undertakes no obligation to update the
information contained in such statement to reflect subsequent developments or
information.
A-3
<PAGE>
Results of Operations
Earnings
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
($ Millions)
<S> <C> <C> <C>
Earnings available to PPL-- excluding
one-time adjustments......................................... $337 $301 $313
One-time adjustments:
Sale of Sunbury plant and related assets (Note 10).......... 42
Securitization (Note 3)..................................... 19
PUC restructuring charge (Note 4)........................... (915)
FERC municipalities settlement (Note 4)..................... (32)
SER settlement.............................................. 18
PPL Gas Utilities acquisition costs......................... 3 (5)
Other impacts of restructuring.............................. 38
---- ----- ----
Earnings (loss) available to PPL--actual...................... $398 $(587) $308
==== ===== ====
</TABLE>
The earnings of PPL Electric Utilities for 1999, 1998 and 1997 were impacted
by several one-time adjustments. Refer to specific Notes to Financial
Statements for discussion of certain of these one-time adjustments. The one-
time adjustments without note references are discussed in "Other Income and
(Deductions)." In addition, the PUC restructuring adjustments provided a
favorable impact of about $38 million on earnings in the second half of 1998.
These adjustments included lower depreciation on impaired generation assets,
reduced accruals for taxes other than income and a regulatory adjustment to
unbilled revenues. These favorable impacts were partially offset by the
immediate expensing of computer software costs identified as impaired in
restructuring accounting adjustments.
Excluding the effects of these one-time adjustments, 1999 earnings were $336
million compared with adjusted earnings of $300 million for 1998. (In 1999,
PPL discontinued including the impact of weather in calculating adjusted
earnings per share.) The adjusted earnings for 1999 represents a $36 million
increase, or about 12%, compared with 1998. The earnings increase was
primarily due to higher margins on wholesale energy and marketing activities,
an increase in electricity supplied to commercial and industrial customers,
lower taxes and lower depreciation on generation assets. In addition, 1998
earnings were adversely impacted by the unusually mild winter weather. These
earnings improvements in 1999 were partially offset by a four percent rate
reduction for electric delivery customers in Pennsylvania and by the loss of
customers who shopped for alternate electric generation suppliers. In
addition, 1998 earnings benefited from certain regulatory treatments that did
not carry over to 1999.
The adjusted earnings of 1998 were $300 million, which were $13 million
lower than the similarly adjusted earnings in 1997. Mild winter weather in
1998 adversely affected earnings. On a weather-adjusted basis, PPL Electric
Utilities' electric delivery sales were 2.9% higher in 1998 than 1997.
Earnings in 1998 were also favorably impacted by higher wholesale electricity
revenues. These earnings improvements were partially offset by higher
operating expenses in 1998 from 1997. This includes higher costs associated
with computer information systems, and additional payroll, consultant services
and other expenses to meet the requirements of retail competition. Increased
firm transmission costs related to the Energy Marketing Center activities and
a higher provision for uncollectible customer accounts also increased
operating expenses.
A-4
<PAGE>
Electric Energy Sales
PPL Electric Utilities' electricity sales for 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(Millions of kWh)
<S> <C> <C> <C>
Electricity delivered to retail customers by PPL Electric
Utilities (a)............................................ 33,045 32,144 31,964
Less: Electricity supplied by others...................... 9,621 1,999 65
------ ------ ------
Electricity supplied to retail customers by PPL Electric
Utilities................................................ 23,424 30,145 31,899
Electricity supplied to retail customers by PPL
EnergyPlus............................................... 10,271 1,506
------ ------ ------
Total electricity supplied to retail customers (a)........ 33,695 31,651 31,899
Wholesale electricity sales............................... 31,683 36,708 21,454
</TABLE>
- -------
(a) kWh for customers residing in PPL Electric Utilities' service territory
who are receiving energy from PPL Electric Utilities or PPL EnergyPlus
will be reflected in both of these categories.
In 1998, there was a pilot of the Electric Choice Program under the Customer
Choice Act. Beginning on January 1, 1999, customers were allowed to choose
their electricity supplier. Customers making this choice continue to have
their electricity delivered by the utility that serves their territory.
Electricity delivered to retail customers increased by 901 million kWh, or
2.8%, in 1999 over 1998. This increase was primarily due to the mild winter in
1998. If normal weather had been experienced in both 1999 and 1998, deliveries
would have increased by 0.6%. Industrial sales showed no growth in 1999.
Electricity delivered in 1998 increased by 180 million kWh, or 0.6%, from
1997. However, if normal weather had been experienced in these years,
deliveries would have increased by 2.9%. This increase reflected strong third
and fourth quarter deliveries to all customer classes.
Electricity supplied to retail customers increased by 2,044 million kWh, or
6.5%, in 1999 as compared to 1998. This increase was due to sales by PPL
EnergyPlus in the competitive market, and the impact of mild winter weather in
1998. The slight decrease in electricity supplied in 1998 compared to 1997 was
due to the impact of weather and the pilot Electric Choice Program.
Wholesale electricity sales, which includes sales to other utilities and
energy marketers through contracts, spot market transactions or power pool
arrangements, decreased by 5,025 million kWh in 1999 when compared to 1998.
This was primarily the result of decreased activity of the Energy Marketing
Center in the electricity wholesale market, because of increased retail market
needs and the decline of contract sales. See the following section for more
information.
Operating Revenues
Electric
The increase in revenues from electric operations was attributable to the
following:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
------------- -------------
(Millions of Dollars)
<S> <C> <C>
Retail Electric Revenue
PPL Electric Utilities--electric delivery and PLR
load............................................ $(338) $ 7
PPL EnergyPlus--electric generation supply....... 415
Other............................................ 26 6
----- ---
$ 103 $13
===== ===
</TABLE>
Operating revenues from retail electric operations increased by $103 million
in 1999 over 1998. PPL Electric Utilities and PPL EnergyPlus revenues
increased by $77 million, or 3.3%, for the same period. This increase, in
part, reflects the unfavorable impact of mild winter weather on 1998 sales.
Also, PPL Electric Utilities and PPL EnergyPlus provided 6.5% more electricity
to retail customers during 1999 as compared with 1998. These revenue gains
were partially offset by a one-year 4% reduction in PPL Electric Utilities'
regulated rates, effective January 1, 1999, in connection with the PUC Final
Order in PPL Electric Utilities' restructuring proceeding.
A-5
<PAGE>
Operating revenues from electric operations increased by $13 million in 1998
from 1997. PPL Electric Utilities' electricity deliveries increased by 2.9%,
contributing to this revenue increase. Also, PPL Electric Utilities' revenues
increased due to a change in the regulatory treatment of energy costs. These
revenue gains were substantially offset by mild winter weather in 1998.
Wholesale Energy Marketing and Trading
The increase in revenues from wholesale energy marketing and trading
activities was attributable to the following:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
------------- -------------
(Millions of Dollars)
<S> <C> <C>
Electric
Bilaterial Sales.................................. $ 36 $496
PJM............................................... 63
Cost-based contracts.............................. (69) (45)
Oil & gas sales..................................... 229 62
Other............................................... 1 (3)
---- ----
$197 $573
==== ====
</TABLE>
Operating revenues from wholesale energy marketing and trading increased by
$197 million in 1999 over 1998. This increase was predominately due to
wholesale gas revenues, which increased nearly four-fold. This increase was,
in part, due to a need for more supply to meet the greater demand for gas-
fired generation and an increase in retail gas marketing activities. The
decrease in revenues from cost-based contracts reflects the phase down of the
capacity and energy agreement with JCP&L by 189,000 MW from 1998. The contract
expired on December 31, 1999.
Revenues in 1998 increased by $573 million over 1997, despite the phase-down
of the capacity and energy agreement with JCP&L and the end of the capacity
and energy agreement with Atlantic. The overall revenue increase reflected PPL
Electric Utilities' continued emphasis on competing in wholesale markets and
support of PPL EnergyPlus requirements. Energy purchases also increased to
meet these increased sales. Refer to "Energy Purchases" for more information.
PUC Restructuring Proceeding
Refer to Note 2 to Financial Statements for information regarding the PUC
restructuring proceeding.
Electric Fuel Costs
Electric fuel costs decreased by $45 million in 1999 when compared to 1998.
The decrease resulted from lower generation by PPL Electric Utilities' coal-
fired and oil/gas fired units, as well as lower fuel prices for coal. The
lower coal-fired generation resulted from units being dispatched less during
off-peak periods, as a result of NOx allowances affecting the unit costs from
May to September of 1999. The Holtwood plant closing and the Sunbury plant
sale (See "Power Plant Operations" discussion) also contributed to the
decrease in generation. In addition, PPL Electric Utilities entered into a
rail contract which lowered coal freight prices effective June 1999. These
decreases were partially offset by higher fuel prices for nuclear and oil/gas
fired stations.
Electric fuel costs increased by $14 million in 1998 when compared to 1997.
This increase reflects higher generation at the coal and oil/gas fired
stations. These units, particularly Martins Creek, were needed as a result of
increased wholesale energy marketing and trading by the Energy Marketing
Center. This increase was partially offset by lower fuel prices for all units,
especially oil/gas fired stations.
Energy Purchases
Energy purchases increased by $307 million in 1999 when compared to 1998.
The increase was primarily due to increased gas purchases by the Energy
Marketing Center, additional wholesale purchases to support PPL EnergyPlus,
and higher wholesale prices for electricity. These increases were partially
offset by a decrease in the volume of electricity purchases and the reduction
of the liability for above-market NUG purchases.
A-6
<PAGE>
Energy purchases increased by $556 million in 1998 when compared to 1997.
The increase was primarily due to greater quantities of energy purchased to
meet the increased wholesale energy marketing and trading by the Energy
Marketing Center, which includes increased purchases of natural gas and
electric capacity for resale. The related sales are included in wholesale
energy sales. In addition, the overall market price of purchased power was
higher during 1998 compared to 1997 due to market volatility.
Other Operation Expenses
Other operation expenses increased by $37 million from 1998 to 1999. Certain
regulatory impacts caused a substantial portion of this increase. This
included about $46 million of regulatory credits recorded in 1998. These
credits were for the loss of revenue as a result of the pilot Electric Choice
Program and the deferral of undercollected energy costs. No similar items were
reflected in 1999, as the pilot program was completed and energy costs were no
longer recoverable through the ECR.
Eliminating the effects of the above amount, the other operation expenses of
PPL Electric Utilities decreased by $9 million in 1999 compared with 1998.
This decrease was primarily due to PPL Electric Utilities' cost-cutting
initiatives to increase shareowner value, gains on the sale of emission
allowances and decreased load dispatching activities for system control. These
decreases were partially offset by additional expenses associated with
customer choice, and additional marketing expenses by PPL EnergyPlus. Also,
wages and employee benefits were higher in 1999 than 1998.
Other operation expenses increased by $81 million from 1997 to 1998. This
increase reflected higher costs associated with computer information systems,
and additional payroll, consultant services and other expenses to meet the
requirements of retail competition. This increase was also due to increased
firm transmission costs related to the Energy Marketing Center activities, and
higher provisions for uncollectible customer accounts. The increases in 1998
were partially offset by credits recorded in connection with the pilot
Electric Choice Program.
Power Plant Operations
In April 1999, PPL Electric Utilities closed its Holtwood coal-fired
generating station. The closing was part of an effort to reduce operating
costs and position PPL Electric Utilities for the competitive marketplace. The
adjacent hydroelectric plant continues to operate.
In November 1999, PPL Electric Utilities sold its Sunbury plant and the
principal assets of its wholly-owned coal processing subsidiary, Lady Jane
Collieries, to Sunbury Holdings, LLC. PPL Electric Utilities received cash
proceeds of $100 million for the assets, including coal inventory, which
resulted in a one-time contribution to earnings of about $41 million.
Depreciation and Amortization
Depreciation and amortization expenses decreased by $102 million from 1998
to 1999. This decrease was mainly due to the write-down of generation-related
assets in connection with the restructuring adjustments recorded in June 1998.
Depreciation and amortization expenses decreased by $50 million from 1997 to
1998. This decrease also reflected the write-down of impaired generation-
related assets.
Other Income and (Deductions)
Other income of PPL Electric Utilities increased by $20 million from 1998 to
1999. PPL Electric Utilities sold its Sunbury plant and the principal assets
of its wholly owned subsidiary, Lady Jane Collieries, recognizing a
$66 million pre-tax gain. Other income in 1998 also included favorable one-
time adjustments: a $30 million recovery from SER to settle a suit over
disputed purchase prices and a $6 million credit to earnings to reverse the
prior expensing of PPL Electric Utilities' proportionate share of PPL Gas
Utilities acquisition costs.
Other income in 1998 increased by $65 million from 1997. This increase was
primarily due to the favorable one-time adjustments recorded in 1998, as noted
above.
A-7
<PAGE>
Financing Costs
PPL Electric Utilities experienced higher financing costs associated with
long-term debt during the past few years, primarily associated with the
issuance of $2.42 billion of transition bonds by PP&L Transition Bond Company.
Refer to "Financing Activities" for more information. Interest on long-term
debt and dividends on preferred stock increased from $235 million in 1996 to
$242 million in 1999, for a total increase of $7 million. Interest on short-
term debt, net of capitalized interest and AFUDC borrowed funds, increased
from $7 million in 1996 to $9 million in 1999.
Income Taxes
Income tax expense decreased by $122 million in 1999 from 1998. This was
primarily due to deferred income taxes no longer required due to
securitization.
Income tax expense in 1998 increased by $26 million from 1997. This was
primarily due to an $87 million increase in pre-tax book income.
Financial Condition
Energy Marketing and Trading Activities
PPL Electric Utilities purchases and sells wholesale electric capacity and
energy under its FERC market-based tariff. PPL Electric Utilities has entered
into agreements to sell firm capacity or energy under its market-based tariff
to certain entities located inside and beyond the PJM power pool. PPL Electric
Utilities enters into these agreements to market available energy and capacity
from its generating assets and to profit from market price fluctuations. If
PPL Electric Utilities were unable to deliver firm capacity and energy under
these agreements, under certain circumstances it would be required to pay
damages. These damages would be based on the difference between the market
price to acquire replacement capacity or energy, and the contract price of the
undelivered capacity or energy. Depending on price volatility in the wholesale
energy markets, such damages could be significant. Extreme weather conditions,
unplanned generating plant outages, transmission disruptions, non-performance
by counterparties (or their counterparties) with which it has power contracts
and other factors could affect PPL Electric Utilities' ability to meet its
firm capacity or energy obligations, or cause significant increases in the
market price of replacement capacity and energy. Although PPL Electric
Utilities attempts to mitigate these risks, there can be no assurance that it
will be able to fully meet its firm obligations, that it will not be required
to pay damages for failure to perform, or that it will not experience
counterparty non-performance in the future.
PPL Electric Utilities attempts to mitigate risks associated with open
contract positions by holding back generation capacity to deliver electricity
to satisfy its net firm sales contracts and by purchasing firm transmission
service. In addition, PPL Electric Utilities' Energy Marketing Center adheres
to the Company's risk management policy and programs, including established
credit policies to evaluate counterparty credit risk. To date, PPL Electric
Utilities has not experienced any significant losses due to non-performance by
counterparties.
During 1999, PPL Electric Utilities entered into commodity forward and
option contracts for the physical purchase and sale of energy, as well as
energy related contracts that could be settled financially. On January 1,
1999, PPL Electric Utilities adopted mark-to-market accounting for energy
contracts executed for trading purposes, in accordance with EITF 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." Under mark-to-market accounting, gains and losses from changes in
market prices on contracts executed for trading purposes are reflected in
current earnings. The earnings effect of mark-to-market accounting was not
significant in 1999. Under EITF 98-10, energy trading activities refer to
energy contracts executed with the objective of generating profits on, or from
exposure to, shifts or changes in market prices. Risk management activities
refer to energy contracts that are designated as (and effective as) hedges of
non-trading activities (i.e., marketing available capacity and energy and
purchasing fuel for consumption). PPL Electric Utilities will continue to use
accrual accounting for energy contracts that are designated as non-trading
activities until it adopts SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. SFAS 133, which
expands the definition of a derivative to possibly include commodity contracts
that require physical delivery, requires that an entity recognize all
derivatives in the statement of financial position at fair value. The
accounting for changes in the fair value of a derivative will depend on the
intended use of the derivative and the resulting designation.
A-8
<PAGE>
PPL Electric Utilities has entered into an agreement to provide wholesale
energy marketing, trading and energy portfolio management services for an
energy cooperative organization that provides energy-related services to
public power entities. The market risk associated with this type of activity
is not significant. PPL Electric Utilities will terminate this agreement early
in 2000. PPL Electric Utilities expects to expand its activities by entering
into similar agreements with other counterparties.
Market Risk Sensitive Instruments
Quantitative and Qualitative Disclosures About Market Risk
PPL Electric Utilities actively manages the market risk inherent in its
commodity, debt, foreign currency and equity positions. The Board of Directors
of PPL Electric Utilities has adopted a risk management policy to manage the
risk exposures related to energy prices, interest rates and foreign currency
exchange rates. The policy establishes a Risk Management Committee comprised
of certain executive officers which oversees the risk management function.
Nonetheless, adverse changes in commodity prices, interest rates, foreign
currency exchange rates and equity prices may result in losses in earnings,
cash flows and/or fair values. The forward-looking information presented below
only provides estimates of what may occur in the future, assuming certain
adverse market conditions, due to reliance on model assumptions. As a result,
actual future results may differ materially from those presented. These
disclosures are not precise indicators of expected future losses, but only
indicators of reasonably possible losses.
See Note 8 to the Financial Statements for a discussion of forward starting
interest rate swaps and treasury locks to hedge debt issuances and retirements
during 1999.
Commodity Price Risk--Energy Marketing Center
PPL Electric Utilities' risk management program is designed to manage the
risks associated with market fluctuations in the price of electricity, natural
gas, oil and emission allowances. The Company's risk management policy and
programs include risk identification and risk limits management, with
measurement and controls for real time risk monitoring. In 1999, PPL Electric
Utilities entered into fixed-price forward and option contracts that required
physical delivery of the commodity, exchange-for-physical transactions and
over-the-counter contracts (such as swap agreements where settlement is
generally based on the difference between a fixed and index-based price for
the underlying commodity). PPL Electric Utilities expects to continue using
such contracts in 2000 as well as tolling agreements or other contractual
arrangements.
PPL Electric Utilities enters into contracts to hedge the impact of market
fluctuations on its energy-related assets, liabilities and other contractual
arrangements. In addition, as defined by EITF 98-10, it enters into these
contracts for trading purposes to take advantage of market opportunities. PPL
Electric Utilities may at times create a net open position in its portfolio
that could result in significant losses if prices do not move in the manner or
direction anticipated.
PPL Electric Utilities uses various methodologies to simulate forward price
curves in the energy markets to estimate the size and probability of changes
in market value resulting from commodity price movements. The methodologies
require several key assumptions, including selection of confidence levels, the
holding period of the commodity positions, and the depth and applicability to
future periods of historical commodity price information. At December 31,
1999, PPL Electric Utilities estimated that a 10% adverse movement in market
prices across all geographic areas and time periods could have decreased the
value of PPL Electric Utilities' trading portfolio by approximately $1
million, as compared to a $16 million decrease at December 31, 1998. For PPL
Electric Utilities' non-trading portfolio, a 10% adverse movement in market
prices across all geographic areas and time periods could have decreased the
value of PPL Electric Utilities' non-trading portfolio by approximately $11
million at December 31, 1999, as compared to a $17 million decrease at
December 31, 1998. However, this effect would have been offset by the change
in the value of the underlying commodity, i.e., the electricity generated. In
addition to commodity price risk, PPL Electric Utilities' commodity positions
are also subject to operational and event risks including, among others,
increases in load demand and forced outages at generating plants.
Commodity Price Risk--PPL EnergyPlus
During 1999, PPL EnergyPlus entered into various arrangements with retail
customers who elected to shop for an energy provider. These contracts
committed PPL EnergyPlus to the sale of electricity or natural gas without a
specified firm volume. The sale contracts ranged in duration from five months
to three years. To hedge the price
A-9
<PAGE>
risk of these transactions, PPL EnergyPlus has the ability to supply the
electricity through a one-year option contract with the Energy Marketing
Center. Therefore, the potential for short-term losses associated with
PPL EnergyPlus' commodity position is not significant.
PPL EnergyPlus also provides for the transportation and sale of excess
electricity generated by PPL Montana. Changes in the prices of this commodity
can affect PPL Montana's financial results. PPL EnergyPlus manages this
exposure, in part, by using financial derivatives and physical instruments in
hedged transactions to reduce earnings volatility and stabilize cash flows.
PPL EnergyPlus may enter into derivative financial instruments from time to
time for trading purposes.
At December 31, 1999, PPL EnergyPlus estimated that a 10% adverse movement
in market prices across all geographic areas and time periods would not have a
significant impact on the financial statements. At December 31, 1999 PPL
EnergyPlus had no trading transactions as defined under EITF 98-10.
Interest Rate Risk
PPL Electric Utilities has issued debt to finance its operations. PPL
Electric Utilities manages its interest rate risk by using financial
derivative products to adjust the mix of fixed and floating-rate interest
rates in their debt portfolios, adjusting the duration of their debt
portfolios and locking in U.S. treasury rates (and interest rate spreads over
treasuries) in anticipation of future financing, when appropriate. Risk limits
are designed to balance risk exposure to volatility in interest expense and
losses in the fair value of PPL Electric Utilities' debt portfolio due to
changes in the absolute level of interest rates. See Note 8 to Financial
Statements for a discussion of financial derivative instruments outstanding at
December 31, 1999.
PPL Electric Utilities' potential annual exposure to increased interest
expense due to a 10% increase in interest rates was estimated at $2.9 million
at December 31, 1999, and $2.5 million at December 31, 1998.
PPL Electric Utilities is also exposed to changes in the fair value of its
debt portfolio. At December 31, 1999, PPL Electric Utilities estimated that
its potential exposure to a change in the fair value of its debt portfolio
through a 10% adverse movement in interest rates was $50.3 million, compared
with $110.2 million at December 31, 1998.
PPL Electric Utilities utilizes various risk management instruments to
reduce its exposure to adverse interest rate movements for future anticipated
financings. While PPL Electric Utilities is exposed to changes in the fair
value of these instruments, they are designed such that any economic loss in
value should be offset by interest rate savings at the time the future
anticipated financing is completed. At December 31, 1999, PPL Electric
Utilities estimated its potential exposure to a change in the fair value of
these instruments through a 10% adverse movement in interest rates at $9.9
million. At December 31, 1998 PPL Electric Utilities had no financial
derivative instruments outstanding.
Market events that are inconsistent with historical trends could cause
actual results to exceed estimated levels.
Nuclear Decommissioning Fund--Securities Price Risk
PPL Electric Utilities maintains trust funds, as required by the NRC, to
fund certain costs of decommissioning Susquehanna. At December 31, 1999, these
funds were invested primarily in domestic equity securities and fixed rate,
fixed income securities and are reflected at fair value on the Consolidated
Balance Sheet. The mix of securities is designed to provide returns to be used
to fund Susquehanna's decommissioning and to compensate for inflationary
increases in decommissioning costs. However, the equity securities included in
the trusts are exposed to price fluctuation in equity markets, and the value
of fixed rate, fixed income securities are exposed to changes in interest
rates. PPL Electric Utilities actively monitors the investment performance and
periodically reviews asset allocation in accordance with PPL Electric
Utilities' nuclear decommissioning trust policy statement. A hypothetical 10%
increase in interest rates and 10% decrease in equity prices would result in
an $18.6 million reduction in the fair value of the trust assets at December
31, 1999, as compared to a $13.7 million reduction at December 31, 1998.
PPL Electric Utilities' restructuring settlement agreement provides for the
collection of authorized nuclear decommissioning costs through the CTC.
Additionally, PPL Electric Utilities is permitted to seek recovery from
customers of up to 96% of any increases in these costs. Therefore, PPL
Electric Utilities' securities price risk is expected to remain insignificant.
A-10
<PAGE>
Capital Expenditure Requirements
The schedule below shows PPL Electric Utilities' current capital expenditure
projections for the years 2000-2004 and actual spending for the year 1999.
PPL Electric Utilities' Capital Expenditure Requirements
<TABLE>
<CAPTION>
Projected
Actual ------------------------
1999 2000 2001 2002 2003 2004
------ ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Construction expenditures
Generating facilities......................... $ 91 $ 69 $ 69 $123 $ 95 $ 61
Transmission and distribution facilities...... 111 115 114 119 119 123
Environmental................................. 47 98 29 5 23 21
Other......................................... 15 22 18 18 16 16
---- ---- ---- ---- ---- ----
Total Construction Expenditures............. 264 304 230 265 253 221
Nuclear fuel owned and leased................... 42 50 55 56 56 59
Operating leases................................ 38 28 28 28 28 28
---- ---- ---- ---- ---- ----
Total Capital Expenditures.................. $344 $382 $313 $349 $337 $308
==== ==== ==== ==== ==== ====
</TABLE>
Construction expenditures include AFUDC and Capitalized Interest which are
expected to be less than $19 million in each of the years 2000-2004.
PPL Electric Utilities' capital expenditure projections for the years 2000-
2004 total about $1.7 billion. Capital expenditure plans are revised from time
to time to reflect changes in conditions.
Acquisitions and Divestitures
Refer to Note 10 to Financial Statements for information regarding
Acquisitions and Divestitures.
Financing and Liquidity
Cash and cash equivalents increased by $5 million more during the twelve
months ended December 31, 1999, compared with the same period in 1998. The
reasons for this change were:
. A $50 million decrease in cash provided by operating activities,
primarily due to the 4% reduction in rates for electric delivery
customers.
. A $63 million increase in cash used in investing activities, primarily
due to loans to PPL affiliates, a decrease in sales of available-for-
sale securities and sales of nuclear fuel to the trust, partially offset
by the sale of the Sunbury generating and related assets.
. A $118 million decrease in cash used in financing activities. This
reflects a net increase in long-term debt, a larger increase in short-
term debt, and a decrease in payments of common dividends. These
financing inflows were partially offset by the repurchase of common
stock and the retirement of preferred stock.
From 1997 through 1999, PPL Electric Utilities issued $2.6 billion of long-
term debt (including $2.42 billion of securitized debt issued by PP&L
Transition Bond Company). From 1997 through 1999, PPL Electric Utilities
retired $2.0 billion of long-term debt and purchased $632 million of common
shares. During the years 1997 through 1999, PPL Electric Utilities also
incurred $184 million of obligations under capital leases.
Refer to Note 9 to Financial Statements for additional information on credit
arrangements and financing activities in 1999.
In the first quarter of 2000, PPL Electric Utilities intends to redeem its
remaining $28 million of First Mortgage Bonds, 9 1/4% Series due 2019, through
the maintenance and replacement fund provisions of its mortgage.
A-11
<PAGE>
Financial Indicators
Earnings for 1999, 1998 and 1997 were impacted by one-time adjustments. (See
"Earnings" for additional information.) The following financial indicators for
PPL Electric Utilities reflect the elimination of these impacts from earnings.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Earnings available to PPL as adjusted (millions of
dollars)................................................. $ 336 $ 300 $ 313
Return on average common equity........................... 17.90% 11.45% 11.91%
Ratio of pre-tax income to interest charges............... 3.44 3.77 3.67
</TABLE>
Environmental Matters
See Note 14 to Financial Statements for a discussion of environmental
matters.
Increasing Competition
The electric utility industry has experienced, and will continue to
experience, a significant increase in the level of competition in the energy
supply market at both the state and federal level.
State Activities
Refer to Note 2 to Financial Statements for a discussion of PPL Electric
Utilities' PUC restructuring proceeding under the Customer Choice Act.
Also refer to Note 2 regarding PPL Electric Utilities' transfer of its
retail electric marketing function to PPL EnergyPlus. PPL EnergyPlus has a PUC
license to act as a Pennsylvania EGS. This license permits PPL EnergyPlus to
offer retail electric supply to participating customers in the service
territory of PPL Electric Utilities and in the service territories of other
Pennsylvania utilities. In 1999, PPL EnergyPlus served industrial and
commercial customers in Pennsylvania, New Jersey and Delaware, and is also
licensed to sell energy in Maine and Montana.
Federal Activities
PPL Electric Utilities and PPL EnergyPlus have authority from the FERC to
sell specified ancillary services at market-based rates in the following
markets: the New England power pool, the New York power pool, the market
administered by the California ISO, and the PJM.
PPL Electric Utilities and PPL EnergyPlus have authority from the FERC to
sell electric energy and capacity at market-based rates and to sell, assign or
transfer transmission rights and associated ancillary services. PPL Electric
Utilities has a FERC-filed code of conduct governing its relationship with
such affiliates that engage in the sale and/or transmission of electric
energy.
Proposed Corporate Realignment
In September 1999, the Boards of Directors of PPL and PPL Electric Utilities
approved the initiation of a corporate realignment, in order to better
position PPL and its subsidiaries in the new competitive marketplace. This
realignment includes the following key features:
. The transfer of all of PPL Electric Utilities' electric generating
facilities and related assets to new generating subsidiaries of PPL,
under a new unregulated generation company. In order to effect this
transfer, these assets will be released from PPL Electric Utilities'
Mortgage.
. The transfer of PPL Electric Utilities' wholesale energy marketing
business to PPL EnergyPlus, which will be the wholesale and retail
energy marketing subsidiary of PPL and will no longer be a subsidiary of
PPL Electric Utilities.
. The transfer of the U.S. electric generating subsidiaries of PPL Global
to the new generation company.
Upon completion of this corporate realignment, PPL Electric Utilities'
principal business will be the transmission and distribution of electricity to
serve retail customers in its franchised territory in eastern and central
Pennsylvania. PPL Global's principal business will be the acquisition or
development of both U.S. and
A-12
<PAGE>
international energy projects and the ownership of international energy
projects. Other existing subsidiaries of PPL and PPL Electric Utilities will
generally be aligned in the new corporate structure according to their
principal business functions.
The proposed corporate realignment is subject to approval from the PUC, the
FERC and the NRC, as well as certain third-party consents. In December 1999,
the company filed applications for these regulatory approvals. Several
protests and petitions to intervene have been filed in these proceedings,
raising a variety of issues associated with the corporate realignment. PPL
currently expects to complete the corporate realignment in mid-2000.
Year 2000
PPL Electric Utilities successfully addressed the Year 2000 issue. The Year
2000 issue was the result of computer programs written using two digits rather
than four to define the applicable year and other programming techniques which
limited date calculations or assigned special meanings to some dates. All of
PPL Electric Utilities' computer systems that had date-sensitive software or
microprocessors could have recognized a date using "00" as the year 1900
rather than the year 2000. This could have resulted in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to measure usage, read meters, process
transactions, send bills, receive payments, distribute electricity or operate
electric generation stations. In addition, the Year 2000 issue could have
affected the ability of customers to receive bills sent by PPL Electric
Utilities or to make payments on these bills. PPL Electric Utilities has not
experienced any significant problems in this regard.
Based upon present assessments, PPL Electric Utilities estimates that it
incurred approximately $13 million in Year 2000 remediation costs. These costs
have been expensed as incurred.
A-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners
of PPL Electric Utilities Corporation:
In our opinion, the accompanying consolidated balance sheet and consolidated
statements of preferred stock, of company-obligated mandatorily redeemable
preferred securities and of long-term debt and the related consolidated
statements of income, of cash flows and of shareowner's common equity present
fairly, in all material respects, the financial position of PPL Electric
Utilities Corporation and subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
[SIGNATURE OF PRICEWATERHOUSECOOPERS LLP]
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2000
A-14
<PAGE>
PPL ELECTRIC UTILITIES CORPORATION
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of PPL Electric Utilities is responsible for the preparation,
integrity and objectivity of the consolidated financial statements and all
other sections of this annual report. The financial statements were prepared
in accordance with generally accepted accounting principles and the Uniform
System of Accounts prescribed by the Federal Energy Regulatory Commission. In
preparing the financial statements, management makes informed estimates and
judgments of the expected effects of events and transactions based upon
currently available facts and circumstances. Management believes that the
financial statements are free of material misstatement and present fairly the
financial position, results of operations and cash flows of PPL Electric
Utilities.
PPL Electric Utilities' consolidated financial statements have been audited
by PricewaterhouseCoopers LLP (PricewaterhouseCoopers) independent certified
public accountants. PricewaterhouseCoopers' appointment as auditors was
previously ratified by the shareowners of PPL. Management has made available
to PricewaterhouseCoopers all PPL Electric Utilities' financial records and
related data, as well as the minutes of shareowners' and directors' meetings.
Management believes that all representations made to PricewaterhouseCoopers
during its audit were valid and appropriate.
PPL Electric Utilities maintains a system of internal control designed to
provide reasonable, but not absolute, assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of fraudulent
financial reporting. The concept of reasonable assurance recognizes that the
cost of a system of internal control should not exceed the benefits derived
and that there are inherent limitations in the effectiveness of any system of
internal control.
Fundamental to the control system is the selection and training of qualified
personnel, an organizational structure that provides appropriate segregation
of duties, the utilization of written policies and procedures and the
continual monitoring of the system for compliance. In addition, PPL Electric
Utilities maintains an internal auditing program to evaluate PPL Electric
Utilities' system of internal control for adequacy, application and
compliance. Management considers the internal auditors' and
PricewaterhouseCoopers' recommendations concerning its system of internal
control and has taken actions which are believed to be cost-effective in the
circumstances to respond appropriately to these recommendations. Management
believes that PPL Electric Utilities' system of internal control is adequate
to accomplish the objectives discussed in this report.
The Board of Directors, acting through PPL's Audit Committee, oversees
management's responsibilities in the preparation of the financial statements.
In performing this function, the Audit Committee, which is composed of four
independent directors, meets periodically with management, the internal
auditors and the independent certified public accountants to review the work
of each. The independent certified public accountants and the internal
auditors have free access to PPL's Audit Committee and to the Board of
Directors, without management present, to discuss internal accounting control,
auditing and financial reporting matters.
Management also recognizes its responsibility for fostering a strong ethical
climate so that PPL Electric Utilities' affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in PPL Electric Utilities' business policies and
guidelines. These policies and guidelines address: the necessity of ensuring
open communication within PPL Electric Utilities; potential conflicts of
interest; proper procurement activities; compliance with all applicable laws,
including those relating to financial disclosure; and the confidentiality of
proprietary information.
[SIGNATURE OF WILLIAM F. HECHT]
William F. Hecht
Chairman, President and Chief Executive Officer
[SIGNATURE OF JOHN R. BIGGAR]
John R. Biggar
Senior Vice President and Chief Financial Officer
A-15
<PAGE>
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Operating Revenues
Electric................................................ $2,513 $2,410 $2,397
Wholesale energy marketing and trading.................. 1,420 1,223 650
Energy related businesses............................... 19 10 2
------ ------ ------
Total................................................. 3,952 3,643 3,049
------ ------ ------
Operating Expenses
Operation
Electric fuel......................................... 445 490 476
Energy purchases for retail load and wholesale........ 1,367 1,060 504
Other................................................. 621 584 503
Amortization of recoverable transition costs.......... 172
Maintenance............................................. 195 180 184
Depreciation and amortization (Note 1).................. 233 335 385
Taxes, other than income (Note 6)....................... 153 185 204
Energy related businesses............................... 17 8 3
------ ------ ------
Total................................................. 3,203 2,842 2,259
------ ------ ------
Operating Income......................................... 749 801 790
Other Income............................................ 97 77 12
------ ------ ------
Income Before Interest and Income Taxes.................. 846 878 802
Interest Expense........................................ 214 196 207
------ ------ ------
Income Before Income Taxes and Extraordinary Items....... 632 682 595
Income Taxes (Note 6)................................... 151 273 247
------ ------ ------
Income Before Extraordinary Items........................ 481 409 348
Extraordinary Items (net of income taxes) (Note 4)...... (46) (948)
------ ------ ------
Income (Loss) Before Dividends on Preferred Stock........ 435 (539) 348
Dividends on Preferred Stock............................ 37 48 40
------ ------ ------
Earnings (Losses) Available to PPL Corporation........... $ 398 $ (587) $ 308
====== ====== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-16
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)...................................... $ 435 $(539) $ 348
Extraordinary items (net of income taxes).............. (46) (948)
------- ----- -----
Net income before extraordinary items.................. 481 409 348
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization........................ 233 335 385
Regulatory debits and credits........................ 194 (61) (36)
Amortization of property under capital leases........ 59 58 68
Amortization of NUG above market liability........... (104)
Deferred income taxes and investment tax credits..... (73) 12 20
Gain on sale of generating assets.................... (65)
Change in current assets and current liabilities....... (73) 8 (14)
Other operating activities--net........................ (7) (66) 15
------- ----- -----
Net cash provided by operating activities.......... 645 695 786
------- ----- -----
Cash Flows From Investing Activities
Expenditures for property, plant and equipment......... (300) (297) (310)
Sale of nuclear fuel to trust.......................... 14 54 60
Sale of generating assets.............................. 99
Purchases of available-for-sale securities............. (15) (72)
Sales and maturities of available-for-sale securities.. 69 88
Purchases and sales of other financial investments--
net................................................... 76
Loan to parent......................................... (60) (375)
Other investing activities--net........................ 1 6 (4)
------- ----- -----
Net cash used in investing activities.............. (246) (183) (537)
------- ----- -----
Cash Flows From Financing Activities
Issuance of long-term debt............................. 2,419 200 9
Retirement of long-term debt........................... (1,497) (266) (210)
Issuance of Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely company debentures............................. 250
Capital contribution from parent....................... 6 7
Retirement of preferred and preference stock........... (380)
Purchase of treasury stock............................. (632)
Payments on capital lease obligations.................. (59) (58) (67)
Payment of common and preferred dividends.............. (231) (412) (344)
Net increase (decrease) in short-term debt............. 92 35 35
Other financing activities--net........................ (90) (1) (9)
------- ----- -----
Net cash used in financing activities.............. (378) (496) (329)
------- ----- -----
Net Increase (Decrease) in Cash and Cash Equivalents.... 21 16 (80)
Cash and Cash Equivalents at Beginning of Period....... 31 15 95
------- ----- -----
Cash and Cash Equivalents at End of Period............. $ 52 $ 31 $ 15
======= ===== =====
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 202 $ 208 $ 201
Income taxes......................................... $ 192 $ 261 $ 253
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-17
<PAGE>
CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents (Note 1)............................... $ 52 $ 31
Accounts receivable (less reserve: 1999, $18; 1998, $16)......... 274 230
Unbilled revenues................................................ 275 163
Fuel, materials and supplies--at average cost.................... 175 196
Prepayments...................................................... 87 14
Unrealized energy trading gains.................................. 26 2
Other............................................................ 78 58
------ ------
967 694
------ ------
Investments
Loan to parent and its affiliates................................ 489 429
Nuclear plant decommissioning trust fund (Notes 1 and 7)......... 255 206
Investment in unconsolidated affiliate at equity (Note 1)........ 17 17
Other (Note 8)................................................... 15 13
------ ------
776 665
------ ------
Property, Plant and Equipment
Electric utility plant in service--net (Note 1)
Transmission and distribution.................................. 2,193 2,179
Generation..................................................... 1,620 1,601
General........................................................ 208 223
------ ------
4,021 4,003
Construction work in progress--at cost........................... 139 117
Nuclear fuel owned and leased--net............................... 139 162
------ ------
Electric utility plant--net.................................... 4,299 4,282
Gas and oil utility plant--net................................... 26 28
Other property--net.............................................. 20 21
------ ------
4,345 4,331
------ ------
Regulatory Assets and Other Noncurrent Assets (Note 4)
Recoverable transition costs..................................... 2,647 2,819
Other............................................................ 357 329
------ ------
3,004 3,148
------ ------
$9,092 $8,838
====== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-18
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Liabilities and Equity
Current Liabilities
Short-term debt (Note 9)...................................... $ 183 $ 91
Long-term debt................................................ 352
Capital lease obligations..................................... 58 59
Above market NUG contracts (Note 4)........................... 99 105
Accounts payable.............................................. 284 178
Taxes and interest accrued.................................... 116 86
Dividends payable............................................. 6 12
Unrealized energy trading losses.............................. 28 9
Other......................................................... 162 114
------ ------
1,288 654
------ ------
Long-term debt................................................. 3,153 2,569
------ ------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits (Note 6)..... 1,528 1,561
Above market NUG purchases (Note 4)........................... 674 775
Capital lease obligations..................................... 67 109
Other (Notes 1 and 7)......................................... 739 724
------ ------
3,008 3,169
------ ------
Commitments and Contingent Liabilities (Note 14)...............
------ ------
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely company debentures......... 250 250
------ ------
Preferred stock
With sinking fund requirements................................ 47 295
Without sinking fund requirements............................. 50 171
------ ------
97 466
------ ------
Shareowner's Common Equity
Common stock.................................................. 1,476 1,476
Additional paid-in capital.................................... 55 70
Treasury stock (Note 1)....................................... (632)
Earnings reinvested........................................... 419 210
Accumulated other comprehensive income (Note 1)............... (6) (6)
Capital stock expense and other............................... (16) (20)
------ ------
1,296 1,730
------ ------
$9,092 $8,838
====== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-19
<PAGE>
CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Common stock at beginning of year.......... $ 1,476 $ 1,476 $ 1,476
Issuance of common stock.................
---------- ---------- ----------
Common stock at end of year................ 1,476 1,476 1,476
---------- ---------- ----------
Additional paid-in capital at beginning of
year...................................... 70 64 57
Capital contribution from PPL............ 6 7
Other.................................... (15)
---------- ---------- ----------
Additional paid-in capital at end of year.. 55 70 64
---------- ---------- ----------
Treasury stock at beginning of year........
Purchase of treasury stock............... (632)
---------- ---------- ----------
Treasury stock at end of year.............. (632)
---------- ---------- ----------
Earnings reinvested at beginning of year... 210 1,092 1,094
Net income (loss) (b).................... 398 (587) 308
Cash dividends declared on common stock.. (189) (295) (310)
---------- ---------- ----------
Earnings reinvested at end of year......... 419 210 1,092
---------- ---------- ----------
Accumulated other comprehensive income at
beginning of year (c)..................... (6)
Unrealized gain (loss) on available-for
sale securities (b)..................... (3) 2
Minimum pension liability adjustment (b). (3) (2)
---------- ---------- ----------
Accumulated other comprehensive income at
end of year............................... (6) (6) --
---------- ---------- ----------
Capital stock expense at beginning of year. (20) (20) (10)
Other.................................... 4 (10)
---------- ---------- ----------
Capital stock expense at end of year....... (16) (20) (20)
---------- ---------- ----------
Total Shareowner's Common Equity........... $ 1,296 $ 1,730 $ 2,612
========== ========== ==========
Common stock shares (thousands) at
beginning of year (a)..................... 157,300 157,300 157,300
Treasury stock purchased................. (55,070)
---------- ---------- ----------
Common stock shares at end of year......... 102,230 157,300 157,300
========== ========== ==========
(a) No par value. 170,000 thousand shares authorized. All common shares of PPL
Electric Utilities stock are owned by PPL.
(b) Statement of Comprehensive Income (Note 1):
Net income (loss)......................... $ 398 $ (587) $ 308
Other comprehensive income, net of tax:
Unrealized gain (loss) on available-for-
sale securities........................ (3) 2
Minimum pension liability adjustment.... (3) (2)
---------- ---------- ----------
Total other comprehensive income.......... (6)
---------- ---------- ----------
Comprehensive income (loss)............... $ 398 $ (593) $ 308
========== ========== ==========
</TABLE>
(c) See Note 1 for disclosure of balances for each component of Accumulated
Other Comprehensive Income.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-20
<PAGE>
CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries (a)
(Millions of Dollars)
<TABLE>
<CAPTION>
Outstanding Shares
------------- Outstanding Shares
1999 1998 1999 Authorized
----- ------ ----------- ----------
<S> <C> <C> <C> <C>
Preferred Stock--$100 par, cumulative
4 1/2%.................................. $ 25 $ 53 247,658 629,936
Series.................................. 72 413 726,665 10,000,000
----- ------
$ 97 $ 466
===== ======
</TABLE>
Details of Preferred Stock (b)
<TABLE>
<CAPTION>
Sinking Fund Provisions
Optional -----------------------
Outstanding Shares Redemption Shares to be
------------- Outstanding Price Per Redeemed Redemption
1999 1998 1999 Share Annually Period
----- ------ ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
With Sinking Fund
Requirements
Series Preferred
5.95%.................. $ 1 $ 30 10,000 (c) 10,000 April 2001
6.05%.................. 25
6.125%................. 31 115 315,500 (c) (d) 2003-2008
6.15%.................. 10 25 97,500 (c) 97,500 April 2003
6.33%.................. 5 100 46,000 (c) 46,000 July 2003
----- ------
$ 47 $ 295
===== ======
Without Sinking Fund
Requirements
4 1/2% Preferred....... $ 25 $ 53 247,658 $110.00
Series Preferred
3.35%.................. 2 4 20,605 103.50
4.40%.................. 11 23 117,676 102.00
4.60%.................. 3 6 28,614 103.00
6.75%.................. 9 85 90,770 (c)
----- ------
$ 50 $ 171
===== ======
</TABLE>
Increases (Decreases) in Preferred Stock
<TABLE>
<CAPTION>
1999
----------------
Shares Amount
-------- ------
<S> <C> <C>
4 1/2% Preferred....................... (282,531) $(28)
Series Preferred
3.35%................................. (21,178) (2)
4.40%................................. (111,097) (12)
4.60%................................. (34,386) (3)
5.95%................................. (290,000) (29)
6.05%................................. (250,000) (25)
6.125%................................ (834,500) (84)
6.15%................................. (152,500) (15)
6.33%................................. (954,000) (95)
6.75%................................. (759,230) (76)
</TABLE>
Decreases in Preferred Stock normally represent: (i) the redemption of stock
pursuant to sinking fund requirements; or (ii) shares redeemed pursuant to
optional redemption provisions. There were no issuances or redemptions of
preferred stock in 1998 through these provisions. The decreases in 1999
indicated above represent PPL Electric Utilities' purchase and cancellation of
its preferred stock which had been held by PPL. PPL Electric Utilities used
$380 million of securitization proceeds to effect this repurchase.
(a) Each share of PPL Electric Utilities' preferred stock entitles the holder
to one vote on any question presented to PPL Electric Utilities'
shareowners' meetings. There were 5,000,000 shares of PPL Electric
Utilities' preference stock authorized; none were outstanding at December
31, 1999 and 1998, respectively.
(b) The involuntary liquidation price of the preferred stock is $100 per
share. The optional voluntary liquidation price is the optional redemption
price per share in effect, except for the 4 1/2% Preferred Stock for which
such price is $100 per share (plus in each case any unpaid dividends).
(c) These series of preferred stock are not redeemable prior to the following
years: 5.95%, 2001; 6.125%, 6.15%, 6.33% and 6.75%, 2003.
(d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500;
2008, 28,000
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-21
<PAGE>
CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED SECURITIES AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries (a)
(Millions of Dollars)
<TABLE>
<CAPTION>
Outstanding Outstanding
----------- ----------- Maturity
1999 1998 1999 Authorized (b)
----- ----- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Company-Obligated Mandatorily
Redeemable Preferred Securities
of Subsidiary Trusts Holding
Solely Company Debentures--$25
per security
8.10%......................... $ 150 $ 150 6,000,000 6,000,000 July 2027
8.20%......................... 100 100 4,000,000 4,000,000 April 2027
----- -----
$ 250 $ 250
===== =====
</TABLE>
- -------
(a) In 1997, PPL Electric Utilities arranged for the issuance of a total of
$250 million of company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely company debentures by PP&L
Capital Trust and PP&L Capital Trust II, two Delaware statutory business
trusts. These preferred securities are supported by a corresponding amount
of junior subordinated deferrable interest debentures issued by PPL
Electric Utilities to the trusts. PPL Electric Utilities owns all of the
common securities, representing the remaining undivided beneficial
ownership interest in the assets of the trusts. The proceeds derived from
the issuance of the preferred securities and the common securities were
used by PP&L Capital Trust and PP&L Capital Trust II to acquire $103
million and $155 million principal amount of Junior Subordinated
Deferrable Interest Debentures, ("Subordinated Debentures") respectively.
PPL Electric Utilities has guaranteed all of the trusts' obligations under
the preferred securities. The proceeds of the sale of these preferred
securities were loaned by PPL Electric Utilities to PPL for the tender
offer for PPL Electric Utilities preferred stock.
(b) The preferred securities are subject to mandatory redemption, in whole or
in part, upon the repayment of the Subordinated Debentures at maturity or
their earlier redemption. At the option of PPL Electric Utilities, the
Subordinated Debentures are redeemable on and after April 1, 2002 (for the
8.20% securities) and July 1, 2002 (for the 8.10% securities) in whole at
any time or in part from time to time. The amount of preferred securities
subject to such mandatory redemption will be equal to the amount of
related Subordinated Debentures maturing or being redeemed. The redemption
price is $25 per security plus an amount equal to accumulated and unpaid
distributions to the date of redemption.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-22
<PAGE>
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
Outstanding
-------------------
1999 1998 Maturity (b)
------ ------ -----------------
<S> <C> <C> <C>
First Mortgage Bonds (a)
6%................................... $ 125 $ 125 June 1, 2000
7 3/4%............................... 28(c) 150 May 1, 2002
6 7/8%............................... 19(c) 100 February 1, 2003
6 7/8%............................... 25(c) 150 March 1, 2004
6 1/8% to 7.70%...................... 475(c)(d) 675 2005-2009
7 3/8%............................... 10(c) 100 2010-2014
9 1/4%............................... 28(c) 215 2015-2019
9 3/8 to 7.30%....................... 88(c) 750 2020-2024
First Mortgage Pollution Control Bonds
(a)
6.40% Series H....................... 90 90 November 1, 2021
5.50% Series I....................... 53 53 February 15, 2027
6.40% Series J....................... 116 116 September 1, 2029
6.15% Series K....................... 55 55 August 1, 2029
------ ------
1,112 2,579
Series 1999-1 Transition Bonds
6.08 to 7.15%........................ 2,390(e) 2001-2008
Pollution Control Revenue Bonds........ 9 9 June 1, 2027
------ ------
3,511 2,588
Unamortized (discount) and premium--
net................................... (6) (19)
------ ------
3,505 2,569
Less amount due within one year........ (352)
------ ------
Total long-term debt............... $3,153 $2,569
====== ======
</TABLE>
- -------
(a) Substantially all owned electric utility plant is subject to the lien of
PPL Electric Utilities' Mortgage.
(b) Aggregate long-term debt maturities through 2004 are (millions of
dollars); 2000, $352; 2001, $240, 2002; $274; 2003, $275; 2004, $288.
There are no bonds outstanding that have sinking fund requirements.
(c) In August 1999, PPL Electric Utilities used a portion of the proceeds from
securitization to repurchase $1.467 billion of its first mortgage bonds
through tender offers and open market purchases.
(d) In May 1998, PPL Electric Utilities issued $200 million First Mortgage
Bonds, 6 1/8% Reset Put Securities due 2006. In connection with this
issuance, PPL Electric Utilities assigned to a third party the option to
call the bonds from the holders on May 1, 2001. These bonds will mature on
May 1, 2006, but will be required to be surrendered by the existing
holders on May 1, 2001 either through the exercise of the call option by
the callholder or, if such option is not exercised, through the automatic
exercise of a mandatory put by the trustee on behalf of the bondholders.
(e) In August 1999, PP&L Transition Bond Company issued $2.42 billion of
transition bonds to securitize a portion of PPL Electric Utilities'
stranded costs. The bonds were issued in eight different classes, with
expected average lives of 1 to 8.7 years. On December 27, 1999, a $29.7
million bond principal payment was made on Class A-1 bonds.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Terms and abbreviations appearing in Notes to Financial Statements are
explained in the glossary.
1. Summary of Significant Accounting Policies
Business and Consolidation
At December 31, 1999, PPL was the parent holding company of PPL Electric
Utilities, PPL Global, PPL Montana, PPL Gas Utilities, PPL Capital Funding,
PPL Spectrum, H.T. Lyons, McClure, McCarl's and Western Mass. Holdings. PPL
Electric Utilities is an operating public utility which provides electricity
delivery service in eastern and central Pennsylvania and markets wholesale
electricity in the United States and Canada. PPL EnergyPlus, a PPL Electric
Utilities subsidiary, sells energy and energy services to deregulated markets.
The consolidated financial statements include the accounts of PPL Electric
Utilities and its direct and indirect wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated.
The investment in Safe Harbor Water Power Corporation, of which PPL Electric
Utilities owns one-third of the outstanding capital stock representing one-
half of the voting securities, is recorded using the equity method of
accounting.
Reclassification
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the current presentation. The Consolidated Balance
Sheet has been reclassified, with components presented in order of liquidity.
The Consolidated Statement of Shareowner's Common Equity has also been
reclassified in connection with SFAS 130, "Reporting Comprehensive Income."
Management's Estimates
These financial statements were prepared using management's best estimates
of existing conditions. Actual results could differ from these estimates.
Accounting Records
The accounting records for PPL Electric Utilities are maintained in
accordance with the Uniform System of Accounts prescribed by the FERC and
adopted by the PUC.
Regulation
Historically, PPL Electric Utilities accounted for its operations in
accordance with the provisions of SFAS 71, which requires rate-regulated
entities to reflect the effects of regulatory decisions in their financial
statements. PPL Electric Utilities discontinued application of SFAS 71 for the
generation portion of its business, effective June 30, 1998.
Electric Utility Plant in Service
Following are the classes of PPL Electric Utilities' Electric Utility Plant
in Service with associated accumulated depreciation reserves, at December 31,
1999 and 1998 (millions of dollars):
<TABLE>
<CAPTION>
Transmission
and Distribution Generation General Total
---------------- ---------- ------- -------
<S> <C> <C> <C> <C>
December 31, 1999:
Basis.............................. $ 3,474 $ 6,105 $ 361 $ 9,940
Accumulated depreciation........... (1,281) (4,485) (153) (5,919)
------- ------- ----- -------
$ 2,193 $ 1,620 $ 208 $ 4,021
======= ======= ===== =======
December 31, 1998:
Basis.............................. $ 3,395 $ 6,351 $ 383 $10,129
Accumulated depreciation........... (1,216) (4,750) (160) (6,126)
------- ------- ----- -------
$ 2,179 $ 1,601 $ 223 $ 4,003
======= ======= ===== =======
</TABLE>
A-24
<PAGE>
Electric Utility Plant in Service is recorded at original cost, unless
impaired, in which case the plant's basis is reduced to its estimated fair
value. Generation plant is reflected at the lower of cost or market value, as
these assets are no longer subject to the provisions of SFAS 71. The other
classes of Electric Utility Plant in Service are recorded at historical cost.
AFUDC is capitalized as part of the construction costs for regulated
projects. Capitalized interest is recorded for generation-related projects.
The cost of repairs and replacements are charged to expense as incurred for
non-regulated projects. When regulated property, plant and equipment is
retired, the original cost plus the cost of retirement, less salvage, is
charged to accumulated depreciation. When entire regulated operating units are
sold or non-regulated plant is retired or sold, the costs of such assets and
the related accumulated depreciation are removed from the balance sheet and
the gain or loss, if any, is included in income, unless otherwise required by
the FERC.
Depreciation is computed over the estimated useful lives of property using
various methods including the straight-line, composite, and group methods.
Provisions for depreciation, as a percent of average gross depreciable
property, approximated 2.1% in 1999, 3.7% in 1998 and 3.8% in 1997.
Nuclear Decommissioning and Fuel Disposal
An annual provision for PPL Electric Utilities' share of the future cost to
decommission the Susquehanna station, equal to the amount allowed for
ratemaking purposes, is charged to depreciation expense. Such amounts are
invested in external trust funds which can be used only for future
decommissioning costs. See Note 7.
Recoverable Transition Costs
Based on the PUC Final Order, PPL Electric Utilities was amortizing its
competitive transition (or stranded) costs over an eleven-year transition
period beginning January 1, 1999 and ending December 31, 2009. In August 1999,
competitive transition costs of $2.402 billion were converted to intangible
transition costs when securitized by the issuance of transition bonds. The
intangible transition costs are being amortized over the life of the
transition bonds--August 1999 through December 2008, in accordance with an
amortization schedule filed with the PUC. The remaining competitive transition
costs are also being amortized based on an amortization schedule previously
filed with the PUC, adjusted for those competitive transition costs that were
converted to intangible transition costs. As a result of the conversion of a
significant portion of the competitive transition costs into intangible
transition costs, amortization of substantially all of the remaining
competitive transition costs will occur in 2009.
Liability for Above Market NUG Contracts
At June 30, 1998, PPL Electric Utilities recorded an estimated liability for
above market contracts with NUGS. Effective January 1999, PPL Electric
Utilities began reducing this liability as an offset to "Energy Purchases" on
the Consolidated Statement of Income. This reduction is based on the estimated
timing of the purchases from the NUGs and projected market prices for this
generation. This accounting will continue through 2014, when the last of the
existing NUG contracts expires.
Accounting for Price Risk Management
PPL Electric Utilities engages in price risk management activities for both
energy trading and non-trading activities as defined by EITF 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." In 1999, PPL Electric Utilities entered into commodity forward
and financial contracts for the physical purchase and sale of energy as well
as energy contracts that can be settled financially. In 1998, these
instruments were reflected in the financial statements using the accrual
method of accounting. As of January 1, 1999, PPL Electric Utilities adopted
mark-to-market accounting for energy trading contracts, in accordance with
EITF 98-10, and gains and losses from changes in market prices are reflected
in "Energy Purchases" on the Consolidated Statement of Income.
PPL Electric Utilities will continue to use EITF 98-10 to account for its
commodity forward and financial contracts until it adopts SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" effective on
January 1, 2001. At that time, PPL Electric Utilities will change the
accounting for any of its outstanding contracts that qualify as derivatives
under SFAS 133.
A-25
<PAGE>
PPL Electric Utilities entered into forward starting swaps and treasury
locks to hedge the interest rate risk associated with debt issuances. The
gains or losses on these swaps have been deferred and are being recognized
over the life of the debt, in accordance with SFAS 80, "Accounting for Futures
Contracts."
Leases
Leased property of PPL Electric Utilities capitalized on the Consolidated
Balance Sheet consists solely of nuclear fuel. Future lease payments for
nuclear fuel are based on the quantity of electricity produced at the
Susquehanna station. These payments are expected to approximate $50 to $59
million per year through 2004. The maximum amount of nuclear fuel available
for lease under current arrangements is $200 million. Payments on other leased
property, which are classified as operating leases, are projected at $28
million per year through 2004. These leases included vehicles, personal
computers and other equipment.
Revenue Recognition
"Electric" and "Wholesale Energy Marketing and Trading" revenues are
recorded based on deliveries through the end of the calendar month.
Income Taxes
The provision for PPL Electric Utilities' deferred income taxes for
regulated assets is based upon the ratemaking principles reflected in rates
established by the PUC and FERC. The difference in the provision for deferred
income taxes for regulated assets and the amount that otherwise would be
recorded under generally accepted accounting principles is deferred and
included in taxes recoverable through future rates on the Consolidated Balance
Sheet. See Note 6.
PPL Electric Utilities deferred the investment tax credits when utilized,
and is amortizing the deferrals over the average lives of the related assets.
PPL Electric Utilities and its wholly-owned subsidiaries file a consolidated
federal income tax return.
Pensions and Other Postretirement and Postemployment Benefits
PPL Electric Utilities has a noncontributory pension plan covering
substantially all employees. Funding is based on actuarially determined
computations that consider the amount deductible for income tax purposes and
the minimum contribution required under the Employee Retirement Income
Security Act of 1974.
The company also provides for certain health care and life insurance
benefits for retired employees and inactive employees covered by disability
plans. See Note 12 for details presented in conformity with SFAS 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
Cash Equivalents
All highly liquid debt instruments purchased with original maturities of
three months or less are considered to be cash equivalents.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income,
defined as changes in common equity from transactions not related to
shareowners. Other comprehensive income consists of unrealized gains or losses
on available-for-sale securities and the excess of additional pension
liability over unamortized prior service costs. In accordance with SFAS 130,
comprehensive income is reflected on the Consolidated Statement of
Shareowners' Common Equity, and "Accumulated Other Comprehensive Income" is
presented on the Consolidated Balance Sheet. The comprehensive income of PPL
Electric Utilities is not materially different from net income for the years
ended December 31, 1999, 1998 and 1997.
Treasury Stock
Treasury shares are reflected on the Consolidated Balance Sheet as an offset
to common equity under the cost method of accounting. Management has no
definitive plans for the future use of these shares.
A-26
<PAGE>
2. PUC Restructuring Proceeding
In August 1998, the PUC entered its Final Order approving the settlement of
PPL Electric Utilities' restructuring proceeding under Pennsylvania's Customer
Choice Act. Among other things, that Order:
. permitted PPL Electric Utilities to recover $2.97 billion (on a net
present value basis) in stranded costs over 11 years--i.e., from January
1, 1999 through December 31, 2009. PPL Electric Utilities' stranded
costs are those which would have been recoverable under traditional rate
regulation, but may not be recoverable in the competitive marketplace.
PPL Electric Utilities was permitted a return of 10.86% on the
unamortized balance of these stranded costs.
. authorized PPL Electric Utilities to issue transition bonds to
securitize up to $2.85 billion of its stranded costs. In August 1999,
PP&L Transition Bond Company issued $2.42 billion of transition bonds.
. required PPL Electric Utilities to reduce rates to all retail customers
by four percent effective January 1, 1999 through December 31, 1999.
. required PPL Electric Utilities to unbundle its retail electric rates
beginning on January 1, 1999, to reflect separate prices for the
transmission and distribution charges, the CTC, the ITC, and the
generation charge. The CTC is a charge paid by all customers who receive
delivery service from PPL Electric Utilities, to recover PPL Electric
Utilities' stranded costs. The ITC, which offsets the CTC on customer
bills, is a charge paid by delivery customers to reflect the
securitization of stranded costs.
. required PPL Electric Utilities to transfer its retail marketing
function to a new subsidiary, PPL EnergyPlus. PPL EnergyPlus has a PUC
license to act as a Pennsylvania EGS. This license permits PPL
EnergyPlus to offer retail electric supply to participating customers in
PPL Electric Utilities' service territory and in the service territories
of other Pennsylvania utilities. In 1999, PPL EnergyPlus offered energy
to industrial and commercial customers in Pennsylvania and in other
states that have opened their markets to competitive suppliers.
. permitted, but did not require, PPL Electric Utilities to transfer
ownership and operation of its generating facilities to a separate
corporate entity at book value.
3. Securitization
In August 1999, PP&L Transition Bond Company issued $2.42 billion of
transition bonds to securitize a portion of PPL Electric Utilities' stranded
costs. The bonds were issued in eight different classes, with expected average
lives of 1 to 8.7 years. PP&L Transition Bond Company, a special purpose
Delaware limited liability company, was formed for the purpose of purchasing
and owning ITP, and pledging its interest in ITP to a trustee to collateralize
transition bonds. The assets of PP&L Transition Bond Company, including the
ITP, are not available to creditors of PPL or PPL Electric Utilities. The
transition bonds are obligations of PP&L Transition Bond Company and are non-
recourse to PPL and PPL Electric Utilities.
PPL Electric Utilities used a portion of the securitization proceeds to
acquire equity held by PPL, including $380 million of preferred stock and $481
million of common stock. In addition, PPL Electric Utilities used a portion of
the proceeds to repurchase $1.467 billion of its first mortgage bonds through
tender offers and open market purchases. In August 1999, PPL Electric
Utilities recorded an extraordinary charge of $59 million for the premiums and
related expenses to extinguish this first mortgage debt. See Note 4 for
additional information.
PPL Electric Utilities' customers will benefit from securitization through
an expected average rate reduction of approximately one percent for the period
the transition bonds are outstanding. With securitization, a substantial
portion of the CTC has been replaced with an ITC, which passes 75% of the net
financing savings back to customers. The actual reduction will vary by year,
by customer class and by level of use.
In December 1999, the PUC approved PPL Electric Utilities' calculation of
ITC under-recoveries for the period from August through November 1999. PPL
Electric Utilities calculated ITC under-recoveries of $14.5 million for this
period. The PUC accepted rates proposed by PPL Electric Utilities to implement
new ITC rates to collect these under-recoveries in 2000.
A-27
<PAGE>
4. Extraordinary Items
PUC Restructuring and FERC Settlement
Historically, PPL Electric Utilities prepared its financial statements for
its regulated operations in accordance with SFAS 71, which requires rate-
regulated companies to reflect the effects of regulatory decisions in their
financial statements. PPL Electric Utilities deferred certain costs pursuant
to rate actions of the PUC and the FERC and recovered, or expected to recover,
such costs in electric rates charged to customers.
The EITF addressed the appropriateness of the continued application of SFAS
71 by entities in states that have enacted restructuring legislation similar
to Pennsylvania's Customer Choice Act. The EITF came to a consensus on Issue
No. 97-4, "Deregulation of the Pricing of Electricity--Issues Related to the
Application of FASB Statements 71 and 101," which concluded that an entity
should cease to apply SFAS 71 when a deregulation plan is in place and its
terms are known. For PPL Electric Utilities, with respect to the generation
portion of its business, this occurred effective June 30, 1998 based upon the
outcome of the PUC restructuring proceeding. PPL Electric Utilities adopted
SFAS 101 for the generation side of its business. SFAS 101 required a
determination of impairment of plant assets performed in accordance with SFAS
121, and the elimination of all effects of rate regulation that were
recognized as assets and liabilities under SFAS 71.
PPL Electric Utilities performed impairment tests of its electric generation
assets on a plant specific basis and determined that $2.388 billion of its
generation plant was impaired at June 30, 1998. Impaired plant was the excess
of the net plant investment at June 30, 1998 over the present value of the net
cash flows during the remaining lives of the plants. Annual net cash flows
were determined by comparing estimated generation sustenance costs to
estimated regulated revenues for the remainder of 1998, market revenues for
1999 and beyond, and revenues from bulk power contracts. The net cash flows
were then discounted to present value.
In addition to the impaired generation plant, PPL Electric Utilities
estimated that there were other stranded costs totaling $1.989 billion at June
30, 1998. This primarily included generation-related regulatory assets and
liabilities and an estimated liability for above-market purchases under NUG
contracts. The total estimated impairment described above was $4.377 billion.
The PUC's Final Order in the restructuring proceeding, entered on August 27,
1998, permitted the recovery of $2.819 billion through the CTC on a present
value basis, excluding amounts for nuclear decommissioning and consumer
education, resulting in a net under-recovery of $1.558 billion. PPL Electric
Utilities recorded an extraordinary charge for this under-recovery in June
1998.
Under FERC Order 888, 16 small utilities which had power supply agreements
with PPL Electric Utilities signed before July 11, 1994, requested and were
provided with PPL Electric Utilities' current estimate of its stranded costs
applicable to these customers if they were to terminate their agreements in
1999. Subject to certain conditions, FERC-approved settlement agreements
executed with 15 of these customers provide for continued power supply by PPL
Electric Utilities through January 2004. As a result of these settlements, PPL
Electric Utilities, in the second quarter of 1998, recorded an extraordinary
charge in the amount of $56 million.
The extraordinary items related to the PUC restructuring proceeding and the
FERC settlement are reflected on the Consolidated Statement of Income, net of
income taxes.
Details of amounts written-off in June 1998 were as follows (millions of
dollars):
<TABLE>
<S> <C>
Impaired generation-related assets.................................. $ 2,388
Above-market NUG contracts.......................................... 854
Generation-related regulatory assets and other...................... 1,135
-------
Total............................................................. 4,377
Recoverable transition costs (a).................................... (2,819)
-------
Extraordinary item pre-tax--PUC..................................... 1,558
--FERC.................................... 56
-------
1,614
Tax effects......................................................... (666)
-------
Extraordinary items................................................. $ 948
=======
</TABLE>
- -------
(a) Excluding recoveries for nuclear decommissioning and consumer education
expenditures.
A-28
<PAGE>
PPL Electric Utilities believes that the electric transmission and
distribution operations continue to meet the requirements of SFAS 71 and that
regulatory assets associated with these operations will continue to be
recovered through rates from customers. At December 31, 1999, $309 million of
net regulatory assets, other than the recoverable transition costs, remain on
PPL Electric Utilities' books. These regulatory assets will continue to be
recovered through regulated transmission and distribution rates over periods
ranging from one to 30 years.
Extinguishment of Debt
SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," requires
that a material aggregate gain or loss from the extinguishment of debt be
classified as an extraordinary item, net of the related income tax effect.
As explained in Note 3, PPL Electric Utilities repurchased $1.467 billion of
first mortgage bonds in August 1999, using the proceeds from the issuance of
transition bonds. PPL Electric Utilities recorded an extraordinary charge of
$59 million for the premiums and related expenses to reacquire these first
mortgage bonds. Details of this extraordinary charge were as follows (millions
of dollars):
<TABLE>
<S> <C>
Reacquisition cost of debt.......................................... $ 1,554
Net carrying amount of debt......................................... (1,454)
-------
Extraordinary charge pre-tax........................................ 100
Tax effects......................................................... (41)
-------
Extraordinary charge................................................ $ 59
=======
</TABLE>
The extraordinary charge related to extinguishment of debt was partially
offset in December 1999 with a credit relating to wholesale power activity.
5. Sales to Other Electric Utilities
PPL Electric Utilities provided JCP&L with 189,000 kilowatts of capacity and
related energy from all of its generating units during 1999. This agreement
terminated on December 31, 1999. PPL Electric Utilities is reselling the
returning capacity and energy through its Energy Marketing Center. Under a
separate agreement, PPL Electric Utilities is providing additional capacity
and energy to JCP&L. This capacity and energy sale increased from 200,000
kilowatts to 300,000 kilowatts in June 1999 and continues at this level
through May 2004. Prices for this capacity and energy are market-based.
In August 1999, the FERC approved new interconnection and power supply
agreements between PPL Electric Utilities and UGI. Under the new power supply
agreement, effective August 1999, UGI purchases capacity from PPL Electric
Utilities equal to UGI's PJM capacity obligation less the capacity reserve
value of UGI's owned generation and an existing power purchase agreement. In
2000, UGI will purchase a firm block of energy in addition to the capacity.
The agreement terminates in February 2001.
PPL Electric Utilities provides BG&E with 129,000 kilowatts, or 6.6%, of its
share of capacity and related energy from the Susquehanna station. Sales to
BG&E will continue through May 2001.
6. Income and Other Taxes
For 1999, 1998 and 1997 the corporate federal income tax rate was 35%, and
the PA corporate net income tax rate was 9.99%.
A-29
<PAGE>
The tax effects of significant temporary differences comprising PPL Electric
Utilities' net deferred income tax liability were as follows (millions of
dollars):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred Tax Assets
Deferred investment tax credits............................... $ 71 $ 78
Purchase contracts............................................ 337 389
Accrued pension costs......................................... 106 99
Contribution in aid of construction........................... 27 22
Other......................................................... 138 124
Valuation allowance........................................... (4) (4)
------ ------
675 708
------ ------
Deferred Tax Liabilities
Electric utility plant--net................................... 811 743
Restructuring--CTC/ITP........................................ 1,026 1,169
Taxes recoverable through future rates........................ 107 100
Reacquired debt costs......................................... 13 13
Other......................................................... 31 26
------ ------
1,988 2,051
------ ------
Net deferred tax liability...................................... $1,313 $1,343
====== ======
</TABLE>
Details of the components of income tax expense, a reconciliation of federal
income taxes derived from statutory tax rates applied to income from continuing
operations for accounting purposes, and details of taxes other than income are
as follows (millions of dollars):
Income Tax Expense
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Income Tax Expense
Provision-Federal.......................................... $ 190 $198 $170
Provision-State............................................ 35 64 58
----- ---- ----
225 262 228
----- ---- ----
Deferred-Federal........................................... 53 18 20
Deferred-State............................................. (110) 3 9
----- ---- ----
(57) 21 29
----- ---- ----
Investment tax credit, net-federal......................... (17) (10) (10)
----- ---- ----
Total.................................................... $ 151 $273 $247
===== ==== ====
Federal...................................................... 226 206 180
State........................................................ (75) 67 67
----- ---- ----
$ 151 $273 $247
===== ==== ====
</TABLE>
A-30
<PAGE>
Reconciliation of Income Tax Expense
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Reconciliation of Income Tax Expense
Indicated federal income tax on pre-tax income before
extraordinary items at statutory tax rate--35%......... $ 221 $ 230 $ 209
Increase/(decrease) due to:
State income taxes...................................... (51) 43 40
Flow through of depreciation differences not previously
normalized............................................. 3 9 22
Amortization of investment tax credit................... (12) (10) (10)
Research & experimentation income tax credits........... 0 (1) (1)
Other................................................... (10) 2 (13)
----- ----- -----
(70) 43 38
----- ----- -----
Total income tax expense.................................. $ 151 $ 273 $ 247
===== ===== =====
Effective income tax rate................................. 23.9% 40.0% 41.5%
</TABLE>
In August 1999, PPL Electric Utilities released approximately $78 million of
deferred income taxes associated with the CTC that were no longer required
because of securitization.
Taxes Other than Income
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
State gross receipts............................................ $105 $104 $104
State utility realty............................................ 12 41 46
State capital stock............................................. 11 17 34
Social security and other....................................... 25 23 20
---- ---- ----
$153 $185 $204
==== ==== ====
</TABLE>
7. Nuclear Decommissioning Costs
PPL Electric Utilities' most recent estimate of the cost to decommission the
Susquehanna station was completed in 1993 and was a site-specific study, based
on immediate dismantlement and decommissioning of each unit following final
shutdown. The study indicated that PPL Electric Utilities' 90% share of the
total estimated cost of decommissioning the Susquehanna station is
approximately $724 million in 1993 dollars. The estimated cost includes
decommissioning the radiological portions of the station and the cost of
removal of nonradiological structures and materials. The operating licenses
for Units 1 and 2 expire in 2022 and 2024, respectively.
Decommissioning costs have been historically charged to operating expense
and have been based upon amounts included in customer rates. Beginning in
1998, decommissioning costs have been reclassified as a component of
depreciation expense. Beginning in January 1999, in accordance with the PUC
Final Order, decommissioning costs will be recovered from customers through
the CTC over the 11 year life of the CTC rather than the remaining life of
Susquehanna. The recovery will include a return on unamortized decommissioning
costs. Decommissioning charges were $27 million in 1999 and $12 million in
1998 and 1997.
Amounts collected from customers for decommissioning, less applicable taxes,
are deposited in external trust funds for investment and can be used only for
future decommissioning costs. The market value of securities held and accrued
income in the trust funds at December 31, 1999 and 1998 were approximately
$255 million and $206 million, respectively. The trust funds experienced, on a
fair market value basis, a $26 million net gain in 1999, which included net
unrealized appreciation of $21 million, and a net gain in 1998 of $31 million,
which included net unrealized appreciation of $26 million. The trust fund
activity is reflected in the nuclear plant decommissioning trust fund and in
other noncurrent liabilities on the Consolidated Balance Sheet. Accrued
nuclear decommissioning costs were $260 million and $209 million at December
31, 1999 and 1998, respectively.
In February 2000, the FASB issued another exposure draft on the accounting
for liabilities related to closure and removal of long-lived assets, including
decommissioning of nuclear power plants. As a result, current industry
accounting practices for decommissioning may change, including the possibility
that the estimated cost for
A-31
<PAGE>
decommissioning could be recorded as a liability at the present value of the
estimated future cash outflows that will be required to satisfy those
obligations.
8. Financial Instruments
During 1999, PPL Electric Utilities entered into forward starting interest
rate swaps and treasury locks with various counterparties to hedge the
interest rate risk associated with anticipated debt issuances, including the
issuance of transition bonds in August 1999. All financial instruments
associated with hedging the interest rate risk of the transition bonds were
settled at the end of July. Proceeds of $2.6 million were received and
deferred on the balance sheet in August, and will subsequently be amortized
over the life of the transition bonds using the effective interest rate
method. Seventy-five percent of these savings are being passed back to
customers. On the same day that PPL Electric Utilities priced its transition
bonds, it entered into short-dated treasury lock transactions with a notional
amount of $1.07 billion to lock in the treasury rate related to its offer to
purchase any or all of $1.66 billion of selected series of its first mortgage
bonds. These contracts were settled one week later for an amount that was not
significant. See Note 3 for additional information about transition bonds.
In the fourth quarter, PPL Electric Utilities entered into $171 million
notional amount of interest rate swaps whereby the company agreed to pay a
floating interest rate and receive a fixed interest rate payment. These swaps
were executed with the intent of adjusting the amount of floating-rate debt
carried in its liability portfolio. At December 31, 1999 the estimated fair
value of these contracts, representing the amount PPL Electric Utilities would
pay if it terminated these agreements at December 31, 1999 was $4.9 million.
The carrying amount on the Consolidated Balance Sheet and the estimated fair
value of financial instruments are as follows (millions of dollars):
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Assets
Nuclear plant decommissioning trust fund (a). $ 255 $ 255 $ 206 $ 206
Financial investments (a).................... 1 1 1 1
Other investments (a)........................ 15 15 12 12
Cash and cash equivalents (a)................ 52 52 31 31
Other financial instruments included in other
current assets (a).......................... 4 4 5 5
Liabilities
Preferred stock with sinking fund
requirements (b)............................ 47 45 295 312
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely company debentures (b)....... 250 217 250 259
Long-term debt (b)........................... 3,505 3,539 2,569 2,761
Commercial paper and bank loans (a).......... 183 183 91 91
</TABLE>
- -------
(a) The carrying value of these financial instruments generally is based on
established market prices and approximates fair value.
(b) The fair value generally is based on quoted market prices for the
securities where available and estimates based on current rates offered to
PPL Electric Utilities where quoted market prices are not available.
9. Credit Arrangements & Financing Activities
PPL Electric Utilities issues commercial paper and, from time to time,
borrows from banks to provide short-term funds for general corporate purposes.
Bank borrowings generally bear interest at rates negotiated at the time of the
borrowing. At December 31, 1999, PPL Electric Utilities had $183 million of
commercial paper outstanding.
In July 1999, PPL Electric Utilities, PPL Capital Funding and PPL (as
guarantor for PPL Capital Funding) entered into a new 364-day $750 million
credit facility with a group of banks. This facility replaced a $350 million
364-day revolving credit facility shared by PPL Electric Utilities and PPL
Capital Funding and five separate $80 million 364-day credit facilities
maintained by PPL Capital Funding. No borrowings are outstanding under this
new facility.
In June 1999, PPL Electric Utilities instituted a short-term bond program in
order to meet short-term working capital requirements and to increase
financing flexibility. Under this program, a total of $600 million of short-
term
A-32
<PAGE>
bonds were issued, with no more than $200 million of such bonds outstanding at
any one time. This program was completed in August 1999, and no such bonds
were outstanding at December 31, 1999.
In August 1999, PPL Electric Utilities repurchased and subsequently retired
$1.467 billion of first mortgage bonds through tender offers and open market
purchases. See Note 3 for additional information on the issuance of $2.42
billion of transition bonds to securitize stranded costs, some of the proceeds
of which were used to fund this purchase of common stock and tendered debt.
In December 1999, Emel repaid $145 million of outstanding bank loans with
proceeds from a borrowing from CEP Reserves, Inc., a PPL Electric Utilities
indirect subsidiary. A $145 million demand note was established for the
repayment of funds from Emel to CEP Reserves. Emel will pay a market-based
rate of interest on the outstanding loan.
10. Acquisitions and Divestitures
In November 1999, PPL Electric Utilities sold its Sunbury plant and the
principal assets of its wholly-owned coal processing subsidiary, Lady Jane
Collieries, to Sunbury Holdings, LLC. PPL Electric Utilities received cash
proceeds of $107 million for these assets, which resulted in an after tax gain
of about $42 million.
In December 1999, PPL Global completed the purchase of generating assets
from the Montana Power Company. Concurrent with this purchase, PPL also
acquired the energy marketing operation of the Montana Power Company for an
amount that was not significant. The Montana marketing and trading operation
became part of PPL EnergyPlus, and sells electricity in wholesale and retail
markets in Montana and the Northwest.
11. Stock-Based Compensation
Under the PPL Incentive Compensation Plan ("ICP") and the Incentive
Compensation Plan for Key Employees ("ICPKE") (together, the "Plans"),
restricted shares of common stock as well as stock options may be granted to
officers and other key employees of PPL Electric Utilities. Awards under the
Plans are made in the common stock of PPL by the Compensation and Corporate
Governance Committee of the Board of Directors in the case of the ICP, and by
the PPL Corporate Leadership Council in the case of the ICPKE. Each Plan
limits the number of shares available for awards to two percent of the
outstanding common stock of PPL on the first day of each calendar year. The
maximum number of options which can be awarded under each Plan to any single
eligible employee in any calendar year is 1.5 million shares. Any portion of
these shares that has not been granted may be carried over and used in any
subsequent year. If any award lapses or is forfeited or the rights to the
participant terminate, any shares of common stock are again available for
grant. Shares delivered under the Plans may be in the form of authorized and
unissued common stock, common stock held in treasury by PPL or common stock
purchased on the open market (including private purchases) in accordance with
applicable securities laws.
Restricted Stock
Restricted shares of common stock are outstanding shares with full voting
and dividend rights. However, the shares are subject to forfeiture or
accelerated payout under Plan provisions for termination, retirement,
disability and death. Restricted shares vest fully if control of PPL changes,
as defined by the Plans.
Restricted stock awards of 83,751, 89,831 and 25,878 shares, with per share
weighted-average fair values of $26.74, $22.74, and $23.39, were granted in
1999, 1998 and 1997, respectively. Compensation expense for these three years
was less than $2 million annually. At December 31, 1999, there were 177,574
restricted shares outstanding. These awards currently vest three years from
the date of grant.
Stock Options
Under the Plans, stock options may also be granted with an option exercise
price per share not less than the fair market value of PPL's common stock on
the date of grant. The options are exercisable beginning one year after the
date of grant, assuming the individual is still employed by PPL or a
subsidiary, in installments as determined by the Compensation and Corporate
Governance Committee of the Board of Directors in the case of the ICP, and the
Corporate Leadership Council in the case of the ICPKE. The Committee (or the
Corporate Leadership Council, in the case of the ICPKE) has discretion to
accelerate the exercisability of the options. All options expire ten years
from the grant date. The options become exercisable if control of PPL changes,
as defined by the Plans.
A-33
<PAGE>
At December 31, 1999, there were 506,100 stock options outstanding, with a
fair value of $2.37 per option. Fair value was determined using a modified
Black-Scholes model with the following assumptions: Risk-free interest rate--
5.61%; Expected stock volatility--16.19%; Expected dividend yield rate--6.60%;
and Expected Option life (years)--10.
PPL Electric Utilities applies Accounting Principles Board Opinion 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for stock options. Since stock options are granted at market price,
no compensation cost has been recognized. Compensation calculated in
accordance with the disclosure requirements of FASB 123, "Accounting for
Stock-Based Compensation," was not significant and had no impact on earnings
per share. (See Note 1).
In April 1999, PPL Electric Utilities made its initial award of stock
options under the Plan. A summary of the stock option activity for 1999
follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Price
------- --------
<S> <C> <C>
Outstanding December 31, 1998................................ 0
Granted.................................................... 522,180 $26.8465
Exercised.................................................. 0
Forfeited.................................................. (16,080) $26.8438
Outstanding December 31, 1999................................ 506,100 $26.8468
Exercisable December 31, 1999................................ 13,570 $26.8438
</TABLE>
Outstanding options had a weighted-average remaining life of 9.2 years at
December 31, 1999.
12. Retirement and Postemployment Benefits
Pension and Other Postretirement Benefits
PPL Electric Utilities has a funded, noncontributory defined benefit plan
covering substantially all employees. PPL Electric Utilities also provides
supplemental retirement benefits to executives and other key management
employees through nonqualified retirement plans.
Substantially all employees of PPL Electric Utilities and its subsidiaries
will become eligible for certain health care and life insurance benefits upon
retirement through contributory plans. Benefits for the PPL Electric Utilities
postretirement benefits are paid from a funded VEBA trust sponsored by the
company. PPL Electric Utilities made contributions to the VEBA trust of $28
million during 1999. At December 31, 1999, PPL Electric Utilities had a
regulatory asset of $7 million relating to postretirement benefits that is
being amortized and recovered in rates with a remaining life of 13 years.
Net pension and postretirement medical benefit costs were (millions of
dollars):
<TABLE>
<CAPTION>
Postretirement
Pension Medical
Benefits Benefits
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.................................. $ 41 $ 35 $ 32 $ 5 $ 4 $ 4
Interest cost................................. 76 68 64 19 16 17
Expected return on plan assets................ (97) (86) (77) (6) (4) (2)
Net amortization and deferral................. (9) (13) (11) 11 9 10
---- ---- ---- --- --- ---
Net periodic pension and postretirement
benefit cost................................. $ 11 $ 4 $ 8 $29 $25 $29
==== ==== ==== === === ===
</TABLE>
The net periodic pension cost charged to operating expenses was $9 million
in 1999, $2 million in 1998 and $5 million in 1997. Retiree health and
benefits costs charged to operating expenses were approximately $20 million in
1999, $19 million in 1998 and $23 million in 1997. Costs in excess of the
amounts charged to expense were charged to construction and other accounts.
A-34
<PAGE>
Postretirement medical costs at December 31, 1999 were based on the
assumption that costs would increase 7.5% in 1999, then the rate of increase
would decline gradually to 6% in 2006 and thereafter. A one-percentage point
change in the assumed health care cost trend assumption would have the
following effects (in millions):
<TABLE>
<CAPTION>
One One
Percentage Percentage
Point Point
Increase Decrease
---------- ----------
<S> <C> <C>
Effect on service cost and interest cost components....... $ 1 $ (1)
Effect on postretirement benefit obligation............... 12 (10)
</TABLE>
The following assumptions were used in the valuation of the benefit
obligations:
<TABLE>
<CAPTION>
Postretirement
Pension Medical
Benefits Benefits
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate............................... 7.0% 6.25% 6.75% 7.0% 6.25% 6.75%
Expected return on plan assets.............. 8.0% 8.0% 8.0% 6.35% 6.35% 6.5%
Rate of compensation increase............... 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
</TABLE>
The funded status of the combined plans was as follows (millions of dollars):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Medical Benefits
-------------- ------------------
1999 1998 1999 1998
------ ------ -------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation, January 1............. $1,198 $ 992 $ 296 $ 237
Service cost............................ 41 35 5 4
Interest cost........................... 76 67 19 16
Plan amendments......................... 67 18 10
Actuarial (gain)/loss................... (122) 75 (15) 42
Acquisitions/Divestitures............... (5) (1)
Special termination benefits............ 3 9
Actual expense paid..................... (3) (3)
Net benefits paid....................... (45) (44) (15) (13)
------ ------ -------- --------
Benefit Obligation, December 31........... 1,143 1,198 307 296
Change in Plan Assets
Plan assets at fair value, January 1...... 1,597 1,403 101 64
Actual return on plan assets............ 197 240 8 13
Employer contributions.................. 1 1 32
Acquisitions/Divestitures............... (4)
Actual expense paid..................... (3) (3) 37
Net benefits paid....................... (45) (44) (15) (13)
------ ------ -------- --------
Plan assets at fair value, December 31.... 1,743 1,597 126 101
Funded Status
Funded Status of Plan..................... 600 399 (181) (195)
Unrecognized transition assets............ (45) (49) 113 122
Unrecognized prior service cost........... 107 114 33 14
Unrecognized net (gain)/loss.............. (901) (690) 23 44
------ ------ -------- --------
Asset/(liability) recognized.............. (239) (226) (12) (15)
Amounts recognized in the Consolidated
Balance Sheet consist of:
Prepaid benefit cost.................... 1 1
Accrued benefit liability............... (240) (227) (12) (15)
Intangible asset........................ 1
Additional minimum liability............ (11) (13)
Accumulated other comprehensive income.. 11 12
------ ------ -------- --------
Net Amount Recognized..................... $ (239) $ (226) $ (12) $ (15)
</TABLE>
A-35
<PAGE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were (in millions) $29, $25 and $0 respectively, as of
December 31, 1999 and 1998.
PPL Electric Utilities and its subsidiaries formerly engaged in coal mining
accrued an additional liability for the cost of health care of their retired
miners. At December 31, 1999, the liability was $19 million. The liability is
net of $50 million of estimated future benefit payments offset by $31 million
of available assets in PPL Electric Utilities funded VEBA trusts.
Savings Plans
Substantially all employees of PPL Electric Utilities and its subsidiaries
are eligible to participate in deferred savings plans (401k's). Company
contributions to the plans approximated $4 million in 1999, $3 million in
1998, and $2 million in 1997. Increasing contributions were the result of a
1999 enhanced matching formula for the PPL Electric Utilities plans.
Postemployment Benefits
PPL Electric Utilities provides health and life insurance benefits to
disabled employees and income benefits to eligible spouses of deceased
employees. Postemployment benefits charged to operating expenses were not
significant in 1999, 1998 or 1997.
13. Jointly Owned Facilities
At December 31, 1999, PPL Electric Utilities or its subsidiary owned
undivided interests in the following facilities (millions of dollars):
<TABLE>
<CAPTION>
Electric
Utility Construction
Ownership Plant in Other Accumulated Work in
Interest Service Property Depreciation Progress
--------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Generating Stations
Susquehanna............. 90.00% $4,133 $3,408 $26
Keystone................ 12.34% 69 43 1
Conemaugh............... 11.39% 104 50 2
Merrill Creek Reservoir... 8.37% $22 11
</TABLE>
Each participant provides its own financing for its share of the facility.
PPL Electric Utilities received a portion of the total output of the
generating stations equal to its percentage ownership. PPL Electric Utilities'
share of fuel and other operating costs associated with the stations is
reflected on the Consolidated Statement of Income.
14. Commitments and Contingent Liabilities
Construction Expenditures
PPL Electric Utilities' construction expenditures for the period 2000-2004
are estimated to aggregate $1.7 billion, including AFUDC and capitalized
interest. For discussion pertaining to construction expenditures, see Review
of Financial Condition and Results of Operations under the caption "Financial
Condition--Capital Expenditure Requirements."
Nuclear Insurance
PPL Electric Utilities is a member of certain insurance programs which
provide coverage for property damage to members' nuclear generating stations.
Facilities at the Susquehanna station are insured against property damage
losses up to $2.75 billion under these programs. PPL Electric Utilities is
also a member of an insurance program which provides insurance coverage for
the cost of replacement power during prolonged outages of nuclear units caused
by certain specified conditions. Under the property and replacement power
insurance programs, PPL Electric Utilities could be assessed retroactive
premiums in the event of the insurers' adverse loss experience. At December
31, 1999, the maximum amount PPL Electric Utilities could be assessed under
these programs was about $24 million.
A-36
<PAGE>
PPL Electric Utilities' public liability for claims resulting from a nuclear
incident at the Susquehanna station is limited to about $9.7 billion under
provisions of The Price Anderson Amendments Act of 1988. PPL Electric
Utilities is protected against this liability by a combination of commercial
insurance and an industry assessment program. In the event of a nuclear
incident at any of the reactors covered by The Price Anderson Amendments Act
of 1988, PPL Electric Utilities could be assessed up to $168 million per
incident, payable at a rate of $20 million per year, plus an additional 5%
surcharge, if applicable.
Environmental Matters
Air
The Clean Air Act deals, in part, with acid rain, attainment of federal
ambient ozone standards and toxic air emissions. PPL subsidiaries are in
compliance with the 1995 Phase I acid rain provisions and have taken steps to
comply with the year 2000 Phase II acid rain provisions.
PPL Electric Utilities has met the 1995 ambient ozone requirements of the
Clean Air Act by reducing its rate of NOx emissions by nearly 50% through the
use of low NOx burners. During 1999, further seasonal (May-June) NOx
reductions to 55% from 1990 levels were achieved in response to PA DEP's rule
implementing the Northeast Ozone Transport Region's Memorandum of
Understanding (OTR MOU). These reductions were achieved with operational
initiatives that rely, to a large extent, on the low NOx burners.
The PA DEP has proposed further seasonal (May-June) NOx reductions to 80%
from 1990 levels starting in 2003. These further reductions are based on the
requirements of the OTR MOU and two EPA ambient ozone initiatives: the
September, 1998, EPA SIP-call issued under Section 110 of the Clean Air Act,
requiring reductions from 22 eastern states, including Pennsylvania; and the
Northeastern states, requiring reductions from sources in 12 northeastern
states and D.C., including PPL Electric Utilities' sources. Despite various
court challenges to the EPA initiatives, the PA DEP is expected to move
forward with the 2003 NOx reductions based on the OTR MOU. PPL Electric
Utilities estimates that the 2003 NOx reductions will be achieved with the
installation of SCR (selective catalytic reduction) technology on PPL Electric
Utilities' three largest units.
EPA has also developed new standards for ambient levels of fine
particulates. These standards were challenged and remanded to EPA by the D.C.
Circuit Court in 1999. The new particulates standard, if finalized, may
require further reductions in SO\\2\\ for PPL Electric Utilities and may
expand the planned seasonal NOx reductions at PPL Electric Utilities to year-
round commencing in 2010-2012.
Under the Clean Air Act, the EPA has been studying the health effects of
hazardous air emissions from power plants and other sources, in order to
determine what should be regulated. The EPA has concluded that mercury is the
power plant air toxin of greatest concern, but that more evaluation is needed
before it can determine whether it must be regulated. The EPA is now seeking
mercury and chlorine sampling and other data from electric generating units,
including those operated by PPL Electric Utilities.
The EPA recently initiated enforcement actions against eight utilities,
asserting that older, coal-fired power plants operated by those utilities
have, over the years, been modified in ways that subject them to more
stringent "New Source" requirements under the Clean Air Act. The EPA also has
threatened similar enforcement action with respect to plants operated by
other, unnamed utilities, as well as facilities in other industries. PPL
Electric Utilities at this time is unable to predict whether such EPA
enforcement actions will be brought with respect to its plants and the scope,
outcome or ultimate financial impact of any potential EPA actions. Compliance
with any such EPA enforcement actions could result in additional capital and
operating expenses in amounts which are not now determinable but which could
be significant.
The EPA is also proposing to revise its regulations in a way that will
require power plants to meet new source performance standards and/or undergo
new source review for many maintenance and repair activities that are
currently exempted as routine.
Expenditures to meet the 2000 acid rain and 2003 NOx reduction requirements
are included in the table of projected construction expenditures in the
section entitled "Financial Condition--Capital Expenditure Requirements" in
the Review of the Financial Condition and Results of Operations. PPL Electric
Utilities currently
A-37
<PAGE>
estimates that additional capital expenditures and operating costs for
environmental compliance under the Clean Air Act will be incurred beyond 2002
in amounts which are not now determinable, but which could be significant.
Water and Residual Waste
The final NPDES permit for PPL Electric Utilities' Montour plant contains
stringent limits for iron and chlorine discharges. Depending on the results of
a toxic reduction study, additional water treatment facilities or operational
changes may be needed at this plant.
Capital expenditures through the year 2003 to correct groundwater
degradation at fossil-fueled generating stations, and to address waste water
control at PPL Electric Utilities' facilities are included in the table of
construction expenditures in the section entitled "Financial Condition--
Capital Expenditure Requirements" in the Review of the Financial Condition and
Results of Operations. In this regard, PPL Electric Utilities currently
estimates that about $6 million of additional capital expenditures may be
required in the next four years to close some of the ash basins and address
other ash basin issues at various generating plants. Additional capital
expenditures could be required beyond the year 2003 in amounts which are not
now determinable but which could be material. Actions taken to correct
groundwater degradation, to comply with the DEP's regulations and to address
waste water control, are also expected to result in increased operating costs
in amounts which are not now determinable but which could be material.
Superfund and Other Remediation
In 1995, PPL Electric Utilities entered into a consent order with the DEP to
address a number of sites where it may be liable for remediation or
contamination. This may include potential PCB contamination at certain
substations and pole sites; potential contamination at a number of coal gas
manufacturing facilities formerly owned and operated by PPL Electric
Utilities; and oil or other contamination which may exist at some of PPL
Electric Utilities' former generating facilities. As of December 31, 1999, PPL
Electric Utilities has completed work on approximately two-thirds of the sites
included in the consent order.
At December 31, 1999, PPL Electric Utilities had accrued approximately $6
million, representing the amount the company can reasonably estimate it will
have to spend for site remediation, including those sites covered by the
company's consent orders mentioned above.
Future cleanup or remediation work at sites currently under review, or at
sites not currently identified, may result in material additional operating
costs that cannot be estimated at this time.
General
Due to the environmental issues discussed above or other environmental
matters, PPL Electric Utilities may be required to modify, replace or cease
operating certain facilities to comply with statutes, regulations and actions
by regulatory bodies or courts. In this regard, PPL Electric Utilities also
may incur capital expenditures, operating expenses and other costs in amounts
which are not now determinable but which could be material.
Loan Guarantees of Affiliated Companies
At December 31, 1999 and 1998, PPL Electric Utilities provided a guarantee
in the amount of $12 million in support of Safe Harbor Water Power
Corporation.
Source of Labor Supply
As of December 31, 1999, PPL Electric Utilities had 6,314 full time
employees. Approximately 62 percent of these full-time employees are
represented by the IBEW. PPL Electric Utilities reached a new labor agreement
with the IBEW in 1998. This agreement expires in May 2002.
15. New Accounting Standards
In June 1999, the FASB issued SFAS 137 which defers the effective date of
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," to
fiscal years beginning after June 15, 2000. PPL Electric Utilities intends to
adopt SFAS 133 as of January 1, 2001. The impact of adopting this statement on
the net income and financial position of PPL Electric Utilities is not
expected to be material.
A-38
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
PPL Electric Utilities Corporation
<TABLE>
<CAPTION>
1999(a) 1998(a) 1997(a) 1996 1995(a)
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Income Items--millions
Operating revenues...................... $3,952 $3,643 $3,049 $2,911 $2,752
Operating income (e).................... 749 801 790 809 836
Earnings (loss) available to PPL........ 398 (587) 308 329 324
Balance Sheet Items--millions (b)
Property, plant and equipment, net...... 4,345 4,331 6,820 6,960 6,970
Recoverable transition costs............ 2,647 2,819
Total assets............................ 9,092 8,838 9,472 9,405 9,424
Long-term debt.......................... 3,505 2,569 2,633 2,832 2,859
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely company
debentures............................. 250 250 250
Preferred stock
With sinking fund requirements........ 47 295 295 295 295
Without sinking fund requirements..... 50 171 171 171 171
Common equity........................... 1,296 1,730 2,612 2,617 2,528
Short-term debt......................... 183 91 45 10 89
Total capital provided by investors..... 5,331 5,106 6,006 5,925 5,942
Capital lease obligations............... 125 168 171 247 220
Financial Ratios
Return on average common equity --%(d).. 17.90 11.45 11.91 12.95 11.65
Embedded cost rates (b)
Long-term debt --%.................... 6.97 7.56 7.91 7.89 7.95
Preferred stock --%................... 5.87 6.09 6.90 6.09 6.09
Preferred securities --%.............. 8.43 8.43 8.43
Times interest earned before income
taxes (d).............................. 3.44 3.77 3.67 3.62 3.41
Ratio of earnings to fixed charges--
total enterprise basis (c), (d)........ 3.09 3.52 3.47 3.50 3.09
Ratio of earnings to fixed charges and
dividends on preferred stock--total
enterprise basis (c), (d).............. 2.62 2.77 2.77 2.93 2.52
Sales Data
Customers (thousands) (b)............... 1,270 1,257 1,247 1,236 1,226
Electric energy sales delivered--
millions of kWh
Residential........................... 11,704 11,156 11,434 11,849 11,300
Commercial............................ 11,002 10,597 10,309 10,288 9,948
Industrial............................ 10,179 10,227 10,078 10,016 9,845
Other................................. 160 164 143 154 188
------ ------ ------ ------ ------
Service area sales.................... 33,045 32,144 31,964 32,307 31,281
Wholesale energy sales................ 31,683 36,706 21,454 14,341 11,424
------ ------ ------ ------ ------
Total electric energy sales delivered. 64,728 68,850 53,418 46,648 42,705
------ ------ ------ ------ ------
Number of Full-Time Employees (b)....... 6,314 6,344 6,343 6,428 6,661
</TABLE>
- -------
(a) The earnings for each year, except for 1996, were affected by one-time
adjustments. These adjustments affected earnings available to PPL and
certain items in Financial Ratios. See "Earnings" in Review of Financial
Condition and Results of Operations for a description of one-time
adjustments in 1999, 1998 and 1997.
(b) At year-end.
(c) Computed using earnings and fixed charges of PPL Electric Utilities and
its subsidiaries. Fixed charges consist of interest on short- and long-
term debt, other interest charges, interest on capital lease obligations
and the estimated interest component of other rentals.
(d) Based on earnings excluding one-time adjustments.
(e) Operating income of 1997 and earlier years restated to conform to the
current presentation.
A-39
<PAGE>
EXECUTIVE OFFICERS OF PPL ELECTRIC UTILITIES CORPORATION
Officers of PPL Electric Utilities are elected annually by the Board of
Directors to serve at the pleasure of the Board. There are no family
relationships among any of the executive officers, or any arrangement or
understanding between any executive officer and any other person pursuant to
which the officer was selected.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
Listed below are the executive officers of PPL Electric Utilities as of
December 31, 1999:
<TABLE>
<CAPTION>
Effective Date of
Election to
Name Age Position Present Position
---- --- -------- -----------------
<S> <C> <C> <C>
William F. Hecht........ 56 Chairman, President and Chief Executive Officer January 1, 1993
Frank A. Long........... 59 Executive Vice President and Chief Operating Officer January 1, 1993
Robert G. Byram......... 54 Senior Vice President and Chief Nuclear Officer April 1, 1997
John R. Biggar.......... 55 Senior Vice President and Chief Financial Officer November 1, 1998
Robert J. Grey.......... 49 Senior Vice President, General Counsel and Secretary March 1, 1996
Terry H. Hunt........... 51 Senior Vice President--Strategic Planning October 1, 1998
Joseph J. McCabe........ 49 Vice President and Controller August 1, 1995
James E. Abel........... 48 Vice President--Finance and Treasurer June 1, 1999
</TABLE>
Each of the above officers, with the exception of Messrs. Grey and Hunt, has
been employed by PPL Electric Utilities for more than five years as of
December 31, 1999. Mr. Grey joined PPL Electric Utilities in March 1995. He
had been General Counsel of Long Island Lighting Company since 1992. Mr. Hunt
joined PPL Electric Utilities in October 1998. He had been President and CEO
of PPL Gas Utilities.
Prior to their election to the positions shown above, the following
executive officers held other positions within PPL Electric Utilities since
January 1, 1995: Mr. Byram was Senior Vice President--Nuclear and Senior Vice
President--Generation and Chief Nuclear Officer; Mr. Biggar was Vice
President--Finance, Vice President--Finance and Treasurer and Senior Vice
President--Financial; Mr. Grey was Vice President, General Counsel and
Secretary; Mr. McCabe was Controller; and Mr. Abel was Manager--Treasury,
Manager--Auditing, and Treasurer.
A-40
<PAGE>
SHAREOWNER AND INVESTOR INFORMATION
Annual Meeting: The annual meeting of shareowners of PPL Electric Utilities
Corporation is held each year on the fourth Friday of April. The 2000 annual
meeting will be held on Friday, April 28, 2000, at Lehigh University's Stabler
Arena, at the Goodman Campus Complex located in Lower Saucon Township, outside
Bethlehem, PA.
Information Statement Material: An information statement and notice of PPL
Electric Utilities' annual meeting is mailed to all shareowners of record as
of February 29, 2000.
Dividends: The 2000 dates for consideration of the declaration of dividends
on PPL Electric Utilities preferred stock by the Board of Directors or its
Executive Committee are February 25, May 26, August 25 and November 17.
Subject to the declaration, such dividends are paid on the first day of April,
July, October and January. Dividend checks are mailed in advance of those
dates with the intention that they arrive as close as possible to the payment
dates. The 2000 record dates for dividends are expected to be March 10, June
9, September 8, and December 8.
Direct Deposit of Dividends: Shareowners may choose to have their dividend
checks deposited directly into their checking or savings account. Quarterly
dividend payments are electronically credited on the dividend date, or the
first business day thereafter.
Dividend Reinvestment Plan: Shareowners may choose to have dividends on
their PPL Electric Utilities preferred stock reinvested in PPL common stock
instead of receiving the dividend by check.
Lost Dividend or Interest Checks: Dividend or interest checks lost by
investors, or those that may be lost in the mail, will be replaced if the
check has not been located by the 10th business day following the payment
date.
Transfer of Stock or Bonds: Stock or bonds may be transferred from one name
to another or to a new account in the name of another person. Please contact
Investor Services regarding transfer instructions.
Bondholder Information: Much of the information and many of the procedures
detailed here for shareowners also apply to bondholders. Questions related to
bondholder accounts should be directed to Investor Services.
Lost Stock or Bond Certificates: Please contact Investor Services for an
explanation of the procedure to replace lost stock or bond certificates.
Shareowner News: An easy-to-read newsletter containing current items of
interest to shareowners--published and mailed at the beginning of each
quarter.
Periodic Mailings: Letters regarding new investor programs, special items of
interest, or other pertinent information are mailed on a non-scheduled basis
as necessary.
Duplicate Mailings: The PPL Corporation summary annual report and other
investor publications are mailed to each investor account. If you have more
than one account, or if there is more than one investor in your household, you
may contact Investor Services to request that only one publication be
delivered to your address. Please provide account numbers for all duplicate
mailings.
Shareowner Information Line: Shareowners can get detailed corporate and
financial information 24 hours a day using the Shareowner Information Line.
They can hear timely recorded messages about earnings, dividends and other
company news releases; request information by fax; and request printed
materials in the mail.
The toll-free Shareowner Information Line is 1-800-345-3085.
A-41
<PAGE>
Other PPL Electric Utilities publications, such as the annual and quarterly
reports to the Securities and Exchange Commission (Forms 10-K and 10-Q) will
be mailed upon request.
Another part of this service is an enhanced Internet home page
(www.pplresources.com). Shareowners can access PPL Electric Utilities
Securities and Exchange Commission filings, stock quotes and historical
performance. Visitors to our website can provide their E-mail address and
indicate their desire to receive future earnings or news releases
automatically.
Investor Services: For any questions you have or additional information you
require about PPL Electric Utilities and its subsidiaries, please call the
Shareowner Information Line, or write to:
George I. Kline
Manager-Investor Services
PPL Corporation
Two North Ninth Street
Allentown, PA 18101
Internet Access: For updated information throughout the year, check out our
home page at http://www.pplresources.com. You may also contact Investor
Services via E-mail at [email protected].
Listed Securities:
New York Stock Exchange
PPL Corporation:
Common Stock (Code: PPL)
PPL Electric Utilities Corporation:
4 1/2% Preferred Stock
(Code: PPLPRB)
4.40% Series Preferred Stock
(Code: PPLPRA)
PP&L Capital Trust:
8.20% Preferred Securities
(Code: PPLPRC)
PP&L Capital Trust II:
8.10% Preferred Securities
(Code: PPLPRD)
Philadelphia Stock Exchange
PPL Corporation:
Common Stock
PPL Electric Utilities Corporation
4 1/2% Preferred Stock
3.35% Series Preferred Stock
4.40% Series Preferred Stock
4.60% Series Preferred Stock
Fiscal Agents:
Stock Transfer Agents and Registrars
Norwest Bank Minnesota, N.A.
Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
PPL Electric Utilities Corporation
Investor Services Department
Dividend Disbursing Office and
Dividend Reinvestment Plan Agent
PPL Electric Utilities Corporation
Investor Services Department
Mortgage Bond Trustee
Bankers Trust Co.
Attn: Security Transfer Unit
P.O. Box 291569
Nashville, TN 37229
Bond Interest Paying Agent
PPL Electric Utilities Corporation
Investor Services Department
A-42
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
For the Quarters Ended (a)
---------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1999
Operating revenues............................ $968 $923 $1,128 $933
Operating income.............................. 237 148 190 174
Net income before extraordinary items......... 120 73 166 122
Net income.................................... 120 73 107 135
Earnings available to PPL Corporation......... 108 61 101 128
1998
Operating revenues............................ $861 $818 $1,131 $833
Operating income.............................. 231 143 259 168
Net income before extraordinary items......... 109 63 137 100
Net income (loss)............................. 109 (885) 137 100
Earnings available to PPL Corporation......... 97 (897) 125 88
</TABLE>
- -------
(a) PPL Electric Utilities Corporation's electric utility business is seasonal
in nature with peak sales periods generally occurring in the winter
months. In addition, earnings in several quarters were affected by several
one-time adjustments. Accordingly, comparisons among quarters of a year
may not be indicative of overall trends and changes in operations.
A-43
<PAGE>
For any questions you may have or additional information you may require
about your account, change in stock ownership, dividend payments and the
reinvestment of dividends, please call the Shareholder Information Line, or
write to:
George Kline, Manager
Investor Services Department
PPL Electric Utilities Corporation
Two North Ninth Street, Allentown, PA 18101
Shareowner Information Line: 800-345-3085
PPL Electric Utilities and PPL file a joint Form 10-K Report and Form 10-Q
Report with the Securities and Exchange Commission. The Form 10-K Report for
1999 and the Form 10-Q Report for the quarter ending March 31, 2000 are
available without charge by writing to the Investor Services Department at the
address printed above, or by calling the toll-free number.
---------------
For the latest information on PPL Corporation or PPL Electric Utilities
Corporation,
visit our location on the Internet at
http://www.pplresources.com
<PAGE>
Admission Ticket [PPL logo]
PPL Electric Utilities Corporation
Annual Meeting of Shareowners
1:30 p.m., April 28, 2000
Lehigh University's Stabler Arena
Bethlehem, Pennsylvania
March 13, 2000
Dear Shareowner:
It is a pleasure to invite you to attend the 2000 Annual Meeting
of Shareowners, which will be held at 1:30 p.m. on Friday, April 28,
2000, at Lehigh University's Stabler Arena, at the Goodman Campus
Complex, located in Lower Saucon Township outside Bethlehem.
Detailed information as to the business to be transacted at the
meeting is contained in the accompanying Notice of Annual Meeting and
Information Statement. We will conclude the formal portion of the
meeting with a discussion of the company's operations and a
question-and-answer period will follow.
The accompanying notice of Annual Meeting and Information
Statement is being provided to you for information purposes only.
As detailed in the Information Statement, votes from holders of
Preferred Stock can have no effect on the outcome of matters under
consideration at the Annual Meeting. Consequently, in an effort to avoid
unnecessary expense, we are not soliciting proxies from such holders.
Preferred and Series Preferred holders are, of course, welcome to attend
the Meeting on April 28.
We hope you will be able to attend in person. If you plan to
attend the meeting, please bring this admission ticket with you to the
meeting. If you are unable to attend the meeting but have any questions
or comments on the company's operations, we would like to hear from you.
Sincerely yours,
/s/ William F. Hecht
William F. Hecht
Chairman, President and Chief Executive Officer
<PAGE>
[PPL Map]
