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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 27, 1995
PP&L Resources, Inc.
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-11459 23-2758192
___________________________________________________________________________
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
No.)
Pennsylvania Power & Light Company
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-905 23-0959590
___________________________________________________________________________
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
No.)
TWO NORTH NINTH STREET, ALLENTOWN, PA. 18101-1179
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code 610-774-5151
___________________________________________________________________________
(Former name or former address, if changed since last report.)
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Item 5. Other Events
On September 27, 1995, the Pennsylvania Public
Utility Commission ("PUC") issued a final order with respect
to the base rate case filed by Pennsylvania Power & Light
Company (the "Company") on December 30, 1994. The Company
is a subsidiary of PP&L Resources, Inc. ("Resources").
The Company's request to increase base rates,
which was its first in ten years, sought to increase PUC
jurisdictional revenues by $261.6 million -- or about 11.7
percent. The PUC's final decision in the rate case grants
the Company a $107 million increase based on test year
conditions. An allocation of a $22 million credit to base
rates from the energy cost rate ("ECR") will produce an $85
million -- or about 3.8 percent -- increase in PUC
jurisdictional revenues effective September 28, 1995.
The following tabulation provides a summary
comparison of the Company's filing and the final decision of
the PUC:
Original
Filing Allowed
Rate Base ($ - Millions) $5,017.7 $5,017.7
Return ($ - Millions) $508.9 $478.7
Rate of Return 10.14% 9.54%
Return on Common Equity 13.00% 11.50%
The following are the major components of the
PUC's decision:
o The decision allows the Company to levelize the amount
of depreciation on pre-1989 property at its Susquehanna
nuclear station at $173 million for the period October
1, 1995 through December 31, 1998, thereby eliminating
the adverse impact on earnings that previously resulted
from the modified sinking fund depreciation applicable
to Susquehanna. As part of its proposal to levelize
depreciation, the Company has agreed to automatically
reduce base rates on January 1, 1999 to reflect the
return to straight line depreciation in the amount of
$102 million for Susquehanna. This change in
depreciation will result in a $90 million annual
reduction in base rates effective January 1, 1999.
o When it decided the Company's last base rate case in
1985, the PUC found that the Company had excess
generating capacity. As a result, the PUC disallowed
the Company a return on the common equity invested in
Susquehanna Unit No. 2. In its September 27 decision,
the PUC has determined that all of the Company's
generating capacity is necessary to meet customer
needs, rejecting the arguments of some intervenors that
an excess capacity adjustment should be imposed on the
Company. As a result of the PUC's action in this
regard, the Company's base rates include a full return
on all of its generating facilities used to serve
retail customers, as well as, all operating expenses
associated with those facilities.
o The PUC's decision permits recovery of the PUC
jurisdictional amount of retiree health care costs
applicable to operations -- the amount incurred under
the prior "pay-as-you-go" method -- about $7 million
annually -- and the amount resulting from the adoption
of Statement of Financial Accounting Standards (SFAS)
106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" -- about $11 million annually. In
addition, the decision permits the Company to recover,
over a period of about 17 years, the amount of SFAS 106
costs that would have been deferred from January 1,
1993 through September 30, 1995 pursuant to a PUC
order, but for a Pennsylvania Commonwealth Court
("Commonwealth Court") decision (now awaiting possible
Pennsylvania Supreme Court review) that the Company
could not recover these deferred costs. As a result of
the PUC decision, which provides for recovery of $27
million of previously expensed SFAS 106 costs, the
Company will record a $15.7 million after-tax credit to
income (9.9 cents per share of Resources' common stock)
in September 1995.
o The PUC decision permits the Company to recover the PUC
jurisdictional amount -- $65.7 million -- of the cost
of its 1994 voluntary early retirement program in
customer rates ratably over a period of five years. As
a result, the Company will record a $37.8 million
after-tax credit to income (23.9 cents per share of
Resources' common stock) in September 1995 to reverse
the charge for this program that was recorded in the
fourth quarter of 1994. The estimated annual savings
from the program also are reflected in the allowed
rates.
o The PUC decision permits recovery over a 10-year period
of certain deferred operating and capital costs, net of
energy savings, incurred from the time Susquehanna Unit
No. 2 was placed in commercial operation until the
effective date of the rate increase for that Unit, but
denies recovery of those costs for Unit No. 1. As a
result of the PUC's decision with respect to
Susquehanna Unit No. 1, the Company expects to record a
one-time charge in September 1995 which, after taxes,
will reduce the Company's net income by $20.4 million,
or 12.9 cents per share of Resources' common stock.
o The combined after-tax effect of the credits to the
Company's net income to reflect recovery of the costs
associated with SFAS 106 and the voluntary early
retirement program and the charge to net income to
reflect the disallowance of Susquehanna Unit No. 1
deferred costs will result in an increase in net income
of $33.1 million, or 20.9 cents per share of Resources'
common stock in the third quarter of 1995.
o In its decision, the PUC made several adjustments to
the amount requested by the Company for the currently
estimated cost of decommissioning the Susquehanna
station. These adjustments included the elimination of
the $106.6 million contingency amount included in the
decommissioning cost estimate, an increase in the
earnings assumption on the decommissioning fund from
5.5 percent to 7.5 percent and a reflection of post-
shutdown earnings on the fund in calculating the total
amount necessary to decommission Susquehanna. After
giving effect to these adjustments, the total amount of
Susquehanna decommissioning costs included in PUC
jurisdictional rates is $9.5 million annually.
o The PUC's decision reduces the return on common equity
from the 13.0 percent requested by the Company to 11.5
percent. In addition to the reduction in the return on
common equity, the PUC made several other adjustments
and disallowances in rendering its final decision.
Except for the reduction in the return on common equity
and the one-time charge relating to the denial of the
claim for deferred operating and capital costs for
Susquehanna Unit No. 1, the adjustments and
disallowances included in the PUC's decision do not
have a significant adverse impact on the Company's and
Resources' earnings.
o The Company is providing Jersey Central Power & Light
Company ("Jersey Central") with 945 megawatts of
capacity and related energy from all the Company's
generating units -- i.e., a "slice" of the Company's
generating system. Sales to Jersey Central will
continue at this level through 1995, with the amount
then declining at the rate of 189 megawatts each year
until the end of the agreement on December 31, 1999.
The Company also is providing: (i) Atlantic City
Electric Company ("Atlantic") with 125 megawatts of
capacity and related energy from the Company's wholly-
owned, coal-fired stations; and (ii) Baltimore Gas and
Electric Company with 129 megawatts of capacity and
related energy from the Susquehanna station. The
agreement with Atlantic originally provided for sales
to continue through September 2000. However, in March
1995 Atlantic notified the Company that it intends to
terminate the agreement in March 1998 pursuant to the
termination provisions in the agreement. The Company
expects to be able to resell the capacity and energy at
prices approximately equal to those received from
Atlantic. Sales to Baltimore Gas and Electric Company
will continue through May 2001.
In its decision, the PUC ruled that the Company cannot
include in its ECR the cost of this capacity as it
returns to the Company. At the same time, however, the
PUC also ruled that the Company was not required to
flow back to customers through the ECR the revenues
received for sales of such returning capacity.
Accordingly, while the costs of the returning capacity
will have an adverse effect on earnings, the PUC's
decision permits the benefits that can be achieved from
sales of the returning capacity to inure to
shareowners. In this regard, the Company estimates
that annual revenues associated with each 189 megawatt
"slice" of returning capacity from Jersey Central are
about $40 million and that economy energy sales of each
such slice on the Pennsylvania-New Jersey-Maryland
Interconnection ("PJM") would produce about $25 million
of annual revenues. In addition, the Company has
entered into a new agreement under which the Company
will provide Jersey Central with increasing amounts of
installed capacity credits and energy from all of the
Company's generating units as follows:
Amount
Period (Kilowatts)
June 1997 - May 1998 150,000
June 1998 - May 1999 200,000
June 1999 - May 2004 300,000
Sales under the new agreement will be priced based on a
predetermined demand factor that escalates over time,
plus an energy component based on the Company's actual
energy related costs. The Company will continue to
seek out additional opportunities to market its low
cost capacity and energy in the bulk power markets, to
produce revenues in excess of the amount that would be
realized through economy energy sales on the PJM.
The parties have 30 days to appeal the PUC's Septem-
ber 27 decision to the Commonwealth Court.
The Company believes that the PUC's rate decision,
along with several initiatives the Company has put in place,
should improve financial performance. These initiatives
include:
o A $671 million reduction in capital expenditures over
the five-year period 1996-2000, including reductions of
$93 million and $220 million for 1996 and 1997,
respectively; these reductions reflect, among other
things, a decision to not install scrubbers at the
Company's Montour coal generating station;
o Except for common equity capital to be provided through
sales of common stock by Resources, the Company expects
to meet all of its construction expenditures and debt
maturities through internally generated funds during
the five-year period 1996-2000;
o A planned 8 percent reduction in operation and
maintenance costs through the year 2000; and
o Marketing and economic development activities to
achieve an average compound growth rate of about 2
percent in sales to service area customers through the
year 2000.
These strategies are consistent with the Company's
continuing commitment to keep its prices as stable as
possible and to maintain customer rates that compare
favorably with those of neighboring utilities.
The Company and Resources believes that rate
decision and these initiatives should result in financial
performance that will permit Resources to increase
shareowner value, including growth in the dividend on
Resources' common stock over the long term. However, actual
sales growth and improvement in earnings and financial
performance will depend upon economic conditions, the levels
of consumption, the impact of increasing competition in the
electric utility industry, the effects of regulation and
other factors.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrants have duly caused this
report to be signed on their behalf by the undersigned
thereunto duly authorized.
PP&L Resources, Inc.
(Registrant)
Pennsylvania Power & Light Company
(Registrant)
/s/ R. E. Hill
R. E. Hill
Senior Vice President-Financial and
Treasurer (PP&L Resources, Inc.)
Senior Vice President-Financial
(Pennsylvania Power & Light Company)
Date: October 6, 1995
