<PAGE>
United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Registrant; State of Incorporation; IRS Employer
Number Address; and Telephone No. Identification No.
1-11459 PP&L Resources, Inc. 23-2758192
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
1-905 Pennsylvania Power & Light Company 23-0959590
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
PP&L Resources, Inc. Yes X No
PP&L Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
PP&L Resources, Inc. Common stock, $.01 par value,
165,110,665 shares outstanding at
July 31, 1997
Pennsylvania Power & Light Co. Common stock, no par value,
157,300,382, shares outstanding and
all held by PP&L Resources, Inc. at
July 31, 1997
<PAGE>
PP&L RESOURCES, INC.
AND
PENNSYLVANIA POWER & LIGHT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PP&L Resources, Inc.
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Pennsylvania Power & Light Company
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Financial Statements
PP&L Resources, Inc. and Pennsylvania
Power & Light Company
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PP&L Resources, Inc. and Pennsylvania Power
& Light Company
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security
Holders
Item 6. Exhibits and Reports on Form 8-K
GLOSSARY OF TERMS AND ABBREVIATIONS
SIGNATURES
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<TABLE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of PP&L Resources, the unaudited financial statements
included herein reflect all adjustments necessary to present fairly the
Consolidated Balance Sheet as of June 30, 1997 and December 31, 1996, and the
Consolidated Statement of Income and Consolidated Statement of Cash Flows for
the periods ended June 30, 1997 and 1996. PP&L Resources is the parent
holding company of PP&L, PMDC, and Spectrum. PP&L constitutes substantially all
of PP&L Resources' assets, revenues and earnings. All nonutility operating
transactions are included in "Other Income and (Deductions)-Net" in PP&L
Resources' Consolidated Statement of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
<CAPTION>
Three Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating Revenues ..................................... $686 $669
Operating Expenses
Operation
Fuel................................................ 105 101
Power purchases..................................... 104 74
Other............................................... 121 127
Maintenance........................................... 49 55
Depreciation (including amortized depreciation)....... 93 90
Income taxes ......................................... 46 53
Taxes, other than income ............................. 50 49
568 549
Operating Income........................................ 118 120
Other Income and (Deductions) - Net..................... 6 2
Income Before Interest Charges and Dividends on
Preferred Stock ...................................... 124 122
Interest Charges
Long-term debt........................................ 48 52
Short-term debt and other............................. 7 2
55 54
Preferred Stock Dividend Requirements................... 4 7
Net Income.............................................. $65 $61
Earnings Per Share of Common Stock (a).................. $0.39 $0.38
Average Number of Shares Outstanding (thousands)........164,068 160,610
Dividends Declared Per Share of Common Stock............$0.4175 $0.4175
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating Revenues .....................................$1,472 $1,458
Operating Expenses
Operation
Fuel................................................ 216 225
Power purchases..................................... 220 165
Other............................................... 238 249
Maintenance........................................... 84 95
Depreciation (including amortized depreciation)....... 185 181
Income taxes ......................................... 134 142
Taxes, other than income ............................. 106 106
1,183 1,163
Operating Income........................................ 289 295
Other Income and (Deductions) - Net..................... 13 4
Income Before Interest Charges and Dividends on
Preferred Stock ...................................... 302 299
Interest Charges
Long-term debt........................................ 99 104
Short-term debt and other............................. 11 3
110 107
Preferred Stock Dividend Requirements................... 11 14
Net Income.............................................. $181 $178
Earnings Per Share of Common Stock (a).................. $1.11 $1.11
Average Number of Shares Outstanding (thousands)........163,660 160,271
Dividends Declared Per Share of Common Stock............$0.835 $0.835
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
PP&L RESOURCES,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Electric utility plant in service - at original cost. $9,931 $9,824
Accumulated depreciation ................................... (3,454) (3,337)
6,477 6,487
Construction work in progress - at cost....................... 154 172
Nuclear fuel owned and leased - net of amortization .......... 164 170
Other leased property - net of amortization .................. 1 76
Electric utility plant - net................................ 6,796 6,905
Other property - (net of depreciation, amortization
and depletion 1997, $56; 1996, $54)......................... 54 55
6,850 6,960
Investments
Investment in and advances to electric energy
projects - at equity .............................. 247 224
Affiliated companies - at equity ............................. 17 17
Nuclear plant decommissioning trust fund ..................... 146 128
Financial investments......................................... 49 133
Other - at cost or less ...................................... 26 18
485 520
Current Assets
Cash and cash equivalents ........................... 45 101
Current financial investments ................................ 29 73
Accounts receivable (less reserve: 1997, $21; 1996, $25)
Customers ................................................ 195 196
Other..................................................... 34 19
Unbilled revenues............................................. 74 85
Fuel, materials and supplies - at average cost................ 208 201
Deferred income taxes ........................................ 28 21
Other......................................................... 111 53
724 749
Regulatory Assets and Other Noncurrent Assets .......... 1,449 1,407
$9,508 $9,636
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES
Capitalization
Common equity
Common stock ............................................ $2 $2
Capital in excess of par value ......................... 1,623 1,590
Earnings reinvested...................................... 1,187 1,143
Capital stock expense and other ......................... (7) 10
2,805 2,745
Preferred stock
With sinking fund requirements .......................... 47 295
Without sinking fund requirements ....................... 50 171
Company-obligated mandatorily redeemable
preferred securities .................................... 250
Long-term debt ............................................ 2,482 2,802
5,634 6,013
Current Liabilities
Commercial paper ......................................... 191
Bank loans ................................................ 100 144
Long-term debt due within one year ........................ 150 30
Capital lease obligations due within one year ............. 60 81
Accounts payable .......................................... 122 133
Taxes accrued ......................................................... 19
Interest accrued .......................................... 53 61
Dividends payable ......................................... 73 75
Other ..................................................... 100 78
849 621
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits ......................... 204 209
Deferred income taxes ..................................... 2,059 2,052
Capital lease obligations ................................. 109 166
Other ..................................................... 653 575
3,025 3,002
Commitments and Contingent Liabilities ....................
$9,508 $9,636
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Net Cash Provided by Operating Activities................. $307 $354
Cash Flows From Investing Activities
Property, plant and equipment expenditures............... (143) (155)
Proceeds from sale of nuclear fuel to trust........................ 23 33
Purchases of available-for-sale securities......................... (52) (278)
Sales and maturities of available-for-sale securities.............. 91 261
Purchases and sales of other financial investments - net........... 58
Other investing activities - net................................... (1) (8)
Net cash used in investing activities........................ (24) (147)
Cash Flows From Financing Activities
Issuance of long-term debt............................... 10 116
Issuance of common stock........................................... 36 35
Issuance of company-obligated mandatorily redeemable
preferred securities ............................................ 250
Retirement of long-term debt....................................... (210) (145)
Purchase of subsidiary's preferred stock (net of premium
and associated costs)............................................ (369)
Payments on capital lease obligations.............................. (33) (44)
Common and preferred dividends paid................................ (150) (147)
Net increase in short-term debt.................................... 147 160
Other financing activities - net .................................. (20) (1)
Net cash used in financing activities........................ (339) (26)
Net Increase (Decrease) In Cash and Cash Equivalents ..... (56) 181
Cash and Cash Equivalents at Beginning of Period ................... 101 20
Cash and Cash Equivalents at End of Period ......................... $45 $201
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized).............................. $106 $107
Income taxes...................................................... $131 $146
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
In the opinion of PP&L, the unaudited financial statements included
herein reflect all adjustments necessary to present fairly the Consolidated
Balance Sheet as of June 30, 1997 and December 31, 1996, and the
Consolidated Statement of Income and Consolidated Statement of Cash Flows
for the periods ended June 30, 1997 and 1996. All nonutility operating
transactions are included in "Other Income and Deductions--Net" in
PP&L's Consolidated Statement of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
<CAPTION>
Three Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating Revenues .................................. $686 $669
Operating Expenses
Operation
Fuel............................................ 105 101
Power purchases................................. 104 74
Other........................................... 121 127
Maintenance........................................ 49 55
Depreciation (including amortized depreciation) ... 93 90
Income taxes....................................... 46 53
Taxes, other than income........................... 50 49
568 549
Operating Income ..................................... 118 120
Other Income and (Deductions) - Net .................. 6 3
Income Before Interest Charges........................ 124 123
Interest Charges
Long-term debt..................................... 48 52
Short-term debt and other.......................... 6 2
54 54
Net Income............................................ 70 69
Dividends on Preferred Stock.......................... 9 7
Earnings Available to PP&L Resources, Inc. .......... $61 $62
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating Revenues .................................. $1,472 $1,458
Operating Expenses
Operation
Fuel............................................ 216 225
Power purchases................................. 220 165
Other........................................... 238 249
Maintenance........................................ 84 95
Depreciation (including amortized depreciation) ... 185 181
Income taxes....................................... 134 142
Taxes, other than income........................... 106 106
1,183 1,163
Operating Income ..................................... 289 295
Other Income and (Deductions) - Net .................. 7 6
Income Before Interest Charges........................ 296 301
Interest Charges
Long-term debt..................................... 99 104
Short-term debt and other.......................... 7 3
106 107
Net Income............................................ 190 194
Dividends on Preferred Stock.......................... 16 14
Earnings Available to PP&L Resources, Inc. .......... $174 $180
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Electric utility plant in service - at original cost.. $9,931 $9,824
Accumulated depreciation ..................................... (3,454) (3,337)
6,477 6,487
Construction work in progress - at cost ........................ 154 172
Nuclear fuel owned and leased - net of amortization ............ 164 170
Other leased property - net of amortization .................... 1 76
Electric utility plant - net .................................. 6,796 6,905
Other property - (net of depreciation, amortization
and depletion 1997, $56; 1996, $54) .......................... 54 55
6,850 6,960
Investments
Affiliated companies - at equity ..................... 17 17
Nuclear plant decommissioning trust fund ....................... 146 128
Loan to parent.................................................. 375
Financial investments .......................................... 50 133
Other - at cost or less ........................................ 11 10
599 288
Current Assets
Cash and cash equivalents ............................ 6 95
Current financial investments .................................. 29 51
Accounts receivable (less reserve: 1997, $21; 1996, $25)
Customers .................................................... 195 196
Other ........................................................ 29 14
Unbilled revenues............................................... 74 85
Fuel, materials and supplies - at average cost ................. 208 201
Deferred income taxes .......................................... 27 21
Other .......................................................... 111 53
679 716
Regulatory Assets and Other Noncurrent Assets .......... 1,448 1,407
$9,576 $9,371
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES
Capitalization
Common equity
Common stock ........................................... $1,476 $1,476
Additional paid-in capital ............................. 57 57
Earnings reinvested .................................... 1,095 1,094
Capital stock expense and other ....................... (18) (10)
2,610 2,617
Preferred stock
With sinking fund requirements ......................... 295 295
Without sinking fund requirements ...................... 171 171
Company-obligated mandatorily redeemable
preferred securities ................................... 250
Long-term debt ........................................... 2,482 2,802
5,808 5,885
Current Liabilities
Commercial paper ......................................... 192
Bank loans ........................................................... 10
Long-term debt due within one year ....................... 150 30
Capital lease obligations due within one year ............ 60 81
Accounts payable ......................................... 121 132
Taxes accrued ............................................ 2 21
Interest accrued ......................................... 53 60
Dividends payable ........................................ 79 75
Other .................................................... 98 78
755 487
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits .......................... 204 209
Deferred income taxes .................................... 2,048 2,050
Capital lease obligations ............................... 109 166
Other .................................................... 652 574
3,013 2,999
Commitments and Contingent Liabilities ....................
$9,576 $9,371
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Net Cash Provided by Operating Activities....................... $308 $357
Cash Flows From Investing Activities
Property, plant and equipment expenditures.................... (143) (155)
Proceeds from sales of nuclear fuel to trust............................. 23 33
Purchases of available-for-sale securities .............................. (52) (71)
Sales and maturities of available-for-sale securities ................... 69 73
Purchases and sales of other financial investments - net................. 76
Loan to parent........................................................... (375)
Net cash used in investing activities.............................. (402) (120)
Cash Flows From Financing Activities
Issuance of long-term debt.................................... 10 116
Issuance of company-obligated mandatorily redeemable
preferred securities .................................................. 250
Retirement of long-term debt............................................. (210) (145)
Payments on capital lease obligations.................................... (33) (44)
Common and preferred dividends paid...................................... (185) (147)
Net increase (decrease) in short-term debt............................... 182 (30)
Other financing activities - net ........................................ (9) 4
Net cash provided by (used in) financing activities................ 5 (246)
Net Increase (Decrease) in Cash and Cash Equivalents (89) (9)
Cash and Cash Equivalents at Beginning of Period........................... 95 15
Cash and Cash Equivalents at End of Period................................. $6 $6
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest (net of amount capitalized)................................... $102 $107
Income taxes........................................................... $133 $146
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
PP&L Resources, Inc. and Pennsylvania Power & Light Company
Notes to Financial Statements
Terms and abbreviations appearing in Notes to Financial Statements are
explained in the glossary.
1. Interim Financial Statements
Certain information in footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, has been condensed or omitted in this Form 10-Q
pursuant to the rules and regulations of the SEC. These financial
statements should be read in conjunction with the financial statements and
notes included in PP&L Resources' and PP&L's Annual Reports to the SEC on
Form 10-K for the year ended December 31, 1996.
Certain amounts in the June 30, 1996 financial statements have been
reclassified to conform to the presentation in the June 30, 1997 financial
statements.
2. PUC Restructuring Proceeding
In December 1996, Pennsylvania enacted the Customer Choice Act to
restructure its electric utility industry in order to create retail access
to a competitive market for the generation of electricity. In accordance
with that legislation, PP&L filed its restructuring plan with the PUC on
April 1, 1997. Numerous parties have intervened in this proceeding. The
PUC is required to take action on PP&L's filing by January 1998.
Under the Customer Choice Act, the PUC is authorized to determine the
amount of PP&L's stranded costs to be recovered through a non-bypassable
competitive transition charge (CTC) to be paid by all PUC-jurisdictional
customers who receive transmission and distribution service from PP&L.
Stranded costs are defined in the Customer Choice Act as "generation-
related costs... which would have been recoverable under a regulated
environment but which may not be recoverable in a competitive generation
market and which the PUC determines will remain following mitigation by the
electric utility."
PP&L's restructuring plan includes a claim of $4.6 billion for
stranded costs. Pursuant to the Customer Choice Act, this claim is
comprised of the following categories:
1. Net plant investments and costs attributable to existing
generation plants and facilities, disposal of spent nuclear fuel,
retirement costs attributable to existing generating plants and
employee-related transition costs;
2. Prudently incurred costs related to the cancellation, buyout,
buydown or renegotiation of NUG contracts; and
3. Regulatory assets and other deferred charges typically recoverable
under current regulatory practice and cost obligations under PUC-approved
contracts with NUGs.
The following are the components of PP&L's stranded cost claim
included in its rebuttal testimony filed with the PUC in August 1997 (a net
increase of $30 million from the amount included in PP&L's April 1997
filing):
Amount
Category of Stranded Cost (Millions of Dollars)
Nuclear Generation(a) $2,873
Fossil Generation(a) 757
NUG Contracts 657
Regulatory Assets 354
$4,641
(a) Includes deferred income taxes related to generation assets.
In determining the appropriate amount of stranded cost recovery, the
Customer Choice Act requires the PUC to consider the extent to which an
electric utility has taken steps to mitigate stranded costs by appropriate
means that are reasonable under the circumstances. Mitigation efforts
undertaken over time prior to the enactment of the Customer Choice Act are
to be considered of equal importance by the PUC in determining an electric
utility's stranded costs as actions taken after the passage of the Customer
Choice Act. In its restructuring plan, PP&L described its extensive
efforts to mitigate its stranded costs, resulting in a reduction in its
stranded cost claim of over $1 billion.
In July 1997, testimony was filed by eleven other parties in the
restructuring proceeding. In this regard, the PUC's OTS recommends that
PP&L be permitted to recover $3.2 billion of its stranded costs; the PP&L
Industrial Customer Alliance recommends recovery of $661 million; and the
OCA recommends recovery of $383 million. Under Pennsylvania law, in
proceedings before the PUC, the OCA and the OTS have advocacy roles.
Testimony filed by the OCA and OTS carries no more weight than testimony
filed by any party in the proceeding.
Evidentiary hearings in this matter will be held in late August. A
recommended decision from the Administrative Law Judge hearing the case is
expected by mid-November, with a final PUC order due in January 1998. PP&L
cannot predict the outcome of this proceeding.
The ultimate impact of the Customer Choice Act on PP&L's financial
health will depend on numerous factors, including:
1. The amount of stranded cost recovery approved by the PUC, the
PUC's overall treatment of PP&L's filing and the effect of the rate cap
imposed under the provisions of the Customer Choice Act;
2. The actual market price of electricity over the transition period;
3. Future sales levels; and
4. The extent to which the regulatory framework established by the
Customer Choice Act will continue to be applied.
Under the Customer Choice Act, PP&L's rates to PUC-jurisdictional
customers are capped at the level in effect on January 1, 1997 through mid-
2001 for transmission and distribution services and through the year 2005
for generation customers. By applying the CTC proposed in its
restructuring plan (which is restricted by the rate cap) through the year
2005, PP&L anticipates collecting approximately $4 billion of its stranded
costs. Based on these projections, the remaining $600 million would be
reflected as lower cash flow to PP&L after the transition period than would
have occurred with continued regulated rates.
In this regard, it should be noted that PP&L's stranded cost claim
included in the restructuring plan is based on a projection of future
market prices and assumes a significant portion of PP&L's stranded costs
will be recovered by way of increased market prices for electricity. This
increase may or may not occur. To the extent that the market price of
electricity does not increase as projected, or other projections such as
future sales levels do not actually occur, PP&L could experience a lower
recovery of stranded costs.
If the PUC permits full recovery of PP&L's stranded costs, including
full recovery of all regulatory assets and above-market NUG costs over the
transition period, PP&L estimates that its net income over the transition
period would be reduced by about 5% of projected net income.
However, the PUC may make adjustments to components or assumptions
included in the restructuring plan that could have an adverse effect on the
amount of the CTC or the categories of stranded costs that are recoverable
through the CTC. As a result of these uncertainties, PP&L cannot determine
whether and to what extent it may be subject to a write-off or a reduction
in earnings until the PUC issues an order with respect to the restructuring
plan. Based on the substantial amounts involved in the restructuring plan,
should PP&L be required to incur a write-off, it could be material in
amount. Accordingly, PP&L is unable to predict the ultimate effect of the
Customer Choice Act or the PUC's disposition of the restructuring plan on
its financial position, results of operation or its need or ability to
issue securities to meet future capital requirements.
The Customer Choice Act permits the issuance of "transition bonds"
securitized by CTC revenues to finance the payment of stranded costs. PP&L
is considering whether to seek to securitize some portion of its stranded
cost claim, which would require the approval of the PUC in a qualified rate
order.
In a related matter, certain parties filed suits in March 1997 in
Pennsylvania Commonwealth Court challenging the constitutionality of the
Customer Choice Act. PP&L has intervened in this proceeding in support of
the Customer Choice Act.
3. Accounting for the Effects of Certain Types of Regulation
The Customer Choice Act establishes a definitive process for
transition to market-based pricing for electric generation. This
transition effectively includes cost-of-service based ratemaking during the
transition period, subject to a rate cap. Rates will include a non-
bypassable CTC, which is designed to give utilities the opportunity to
recover their stranded costs during the transition period.
The SEC has made inquiries regarding the appropriateness of the
continued application of SFAS 71 by utilities in states that have enacted
restructuring legislation similar to the Customer Choice Act. Accordingly,
the FASB's Emerging Issues Task Force (EITF) investigated this issue and
concluded that utilities should discontinue application of SFAS 71 for the
generation portion of their business when a deregulation plan is in place
and its terms are known, which for PP&L will be upon the issuance of the
PUC's restructuring order in January 1998. One of the EITF's key
conclusions is that utilities should continue to carry some or all of their
regulatory assets and liabilities that originated in the generation portion
of the business if the regulatory cash flows to realize and settle them,
respectively, will be derived from the regulated portion of the business
(e.g., transmission and distribution). In addition, costs or obligations of
the generation portion of the business that are incurred after application
of SFAS 71 ceases and that are covered by the regulated cash flows for the
portion of the business that remains regulated on a cost of service basis
would also meet the criteria to be considered regulatory assets or
liabilities.
Given the current regulatory environment, PP&L's electric transmission
and distribution businesses are expected to remain regulated on a cost of
service basis and, as a result, the provisions of SFAS 71 should continue
to apply to those businesses. The impact of the discontinuance of
application of SFAS 71 to the generation portion of PP&L's business will
depend to a large degree on the outcome of the restructuring proceeding
currently pending before the PUC. See Financial Note 2 for a discussion of
the potential financial impacts of that proceeding.
4. Rate Matters
Appeal of Base Rate Case
Reference is made to PP&L Resources' and PP&L's Annual Report to the
SEC on Form 10-K for the year ended December 31, 1996, regarding the PUC
Decision. The OCA appealed three issues from the PUC Decision to the
Pennsylvania Commonwealth Court. In May 1997, the Commonwealth Court
issued its opinion on the OCA's appeal.
The first issue was the recovery of deferrals under SFAS 106. PP&L
had requested recovery of $27 million of increased costs for post-
retirement benefits caused by the change to accrual accounting of those
costs under SFAS 106. The PUC had allowed this recovery, and the
Commonwealth Court upheld the PUC's decision.
The second issue was the recovery of $19 million of carrying charges
and operating expenses incurred from the date of commercial operation of
Susquehanna Unit 2 until the plant was recognized in rates. PP&L had
requested recovery of those costs to be amortized over ten years. The PUC
had allowed this recovery, and the Commonwealth Court upheld the PUC's
decision.
The third issue was the recovery of Gross Receipts Tax (GRT) on
uncollectible revenues. PP&L had requested an allowance for GRT on the
full amount of revenue approved by the PUC, while the OCA had proposed a
$745,000 adjustment to disallow GRT on revenues that PP&L will not be able
to collect. The PUC had rejected the OCA's proposed adjustment. The
Commonwealth Court reversed the PUC and remanded that issue to the PUC for
recalculation of the allowance.
In June 1997, the OCA filed a petition for allowance of appeal with
the Pennsylvania Supreme Court requesting review of the Commonwealth
Court's decision on the SFAS 106 issue. PP&L and the PUC have filed briefs
opposing the OCA's petition. This is not an appeal of right and the
Supreme Court has the discretion to grant or deny the OCA's request for
review. PP&L cannot predict the final outcome of this matter.
FERC - Major Utility Rates
In January 1996, PP&L filed a request with the FERC to incorporate a
change in the method of calculating depreciation under its contracts with
four major electric utility customers (Atlantic, BG&E, JCP&L, and UGI).
PP&L also sought to increase the charges to those customers for nuclear
decommissioning costs. A settlement of this case was approved by the FERC
in June 1997, under terms which have no material effect on PP&L.
5. Sales to Other Major Electric Utilities
In March 1997, PP&L reached a new agreement with GPU Energy for
installed capacity credit sales for up to 200,000 kW from July 1997 through
December 1998, and in April 1997 PP&L signed a new agreement with Atlantic
for installed capacity credit sales for up to 25,000 kilowatts from June
1997 through May 1998.
In May 1997, PP&L reached an agreement with Delmarva Power & Light
Company and Old Dominion Electric Cooperative for PP&L and Delmarva to
jointly provide Old Dominion with 60,000 kW of capacity to serve portions
of Old Dominion's load from 1998 through 2003. Prices for this capacity
reflect market conditions. FERC acceptance of this agreement is expected
later in 1997.
In June 1997, PP&L began a sale of capacity and energy to JCP&L
pursuant to an agreement which provides that JCP&L will purchase 150,000 kW
of capacity and energy for 12 months, increasing to 200,000 kW in June
1998, and then to 300,000 kW in June 1999 through the end of the agreement
in May 2004. Prices for this energy and capacity reflect market
conditions.
In July 1997, FERC accepted a new wholesale power tariff that permits
PP&L to sell capacity and energy at market-based rates, both inside and
outside the PJM area, subject to certain conditions. This tariff allows
PP&L to become more active in the wholesale market with utilities and other
entities, and removes pricing restrictions which in the past had limited
PP&L to charging at or below cost-based rates.
6. Financial Instruments
Financial investments decreased by $128 million from December 31, 1996
to June 30, 1997, largely due to the liquidation of long-term investments
to make funds more readily available for future investments.
7. Credit Arrangements and Financing Activity
From January through July 1997, PP&L Resources issued $51 million of
common stock through the DRIP.
In April 1997, PP&L redeemed $210 million principal amount of four
series of first mortgage bonds. Three of the series of first mortgage
bonds were redeemed under the maintenance and replacement fund provisions
of the mortgage. These series of bonds consisted of $40 million principal
amount of the 7% series due 1999; $60 million principal amount of the
7-1/4% series due 2001; and $80 million principal amount of the 7-1/2%
series due 2003. The fourth series, $30 million principal amount of the 6-
3/4% series due 1997, was redeemed under the optional redemption provisions
of that series.
In April 1997, PP&L instituted a short-term bond program in order to
meet certain short-term working capital requirements and to accomplish
other corporate purposes. Under this program, a total of $800 million of
short-term bonds (having maturities not in excess of 30 days) were issued
from time to time, with no more than $150 million of such bonds outstanding
at any one time. No such bonds are now outstanding.
In March and April 1997, PP&L Resources acquired 79.09% ($369 million
par value) of the outstanding preferred stock of PP&L in a tender offer.
By obtaining a majority of the 4-1/2% Preferred Stock and a majority of the
combined amount of the 4-1/2% Preferred Stock and Series Preferred Stock
(collectively, the Preferred Stock), PP&L Resources will be able to waive
certain restrictive provisions contained in PP&L's Articles of
Incorporation, including limitations on PP&L's ability to increase the
authorized number of shares of Preferred Stock, merge or consolidate with
other corporations, and issue additional Preferred Stock and unsecured
debt.
To provide financing for a portion of this tender offer, PP&L arranged
for the issuance of a total of $250 million of Company-Obligated
Mandatorily Redeemable Preferred Securities (preferred securities) by two
Delaware statutory business trusts. These securities consist of four
million shares of 8.20% preferred securities issued to the public in April
1997 for $25 per share, for proceeds of $100 million; and six million
shares of 8.10% preferred securities issued to the public in June 1997 for
$25 per share, for proceeds of $150 million. PP&L owns all of the common
securities, representing the remaining undivided beneficial ownership
interest in the assets of the trusts. The assets of the trusts consist
solely of PP&L's junior subordinated deferrable interest debentures, whose
rates and maturities match those of the preferred securities. PP&L has
guaranteed all of the trusts' obligations under the preferred securities.
The proceeds of the sale of these preferred securities were loaned by PP&L
to PP&L Resources for the tender offer.
PP&L has credit arrangements with groups of banks, which have
committed to lend PP&L up to $295 million. The maturity date for loans
under certain of these credit arrangements in the aggregate amount of $45
million has been extended from May 1997 to December 1997.
PP&L Resources has a revolving credit facility in the amount of $300
million. The maturity date for loans under this credit arrangement has
been extended from May 1997 to the end of November 1997, when the facility
is due to terminate. Borrowings under this credit facility were $100
million at June 30, 1997. An additional $90 million was borrowed in July
to finance a portion of PMDC's purchase of a 25.05% interest in Emel.
8. Proposed Windfall Profits Tax - PMDC
In July 1997, the new Labour government in the United Kingdom
announced its budget proposals, which include a windfall profits tax on the
privatized utilities in the U.K. The tax would be payable in two equal
installments in December 1997 and December 1998. Preliminary estimates are
that SWEB's windfall profits tax would be approximately 97 million pounds
sterling, or about $160 million (depending on exchange rates). Based on
this estimate and PMDC's 25% ownership interest in SWEB, PP&L Resources
would incur a one-time charge against earnings of about $40 million, or 24
cents per share. PP&L Resources expects to record this charge in the third
quarter of 1997.
9. Proposed Acquisition of Penn Fuel Gas, Inc.
In June 1997, PP&L Resources entered into an agreement with Penn Fuel
Gas, Inc. (PFG), a Pennsylvania corporation, pursuant to which PP&L
Resources would acquire PFG. PFG, with nearly 100,000 customers in
Pennsylvania and a few hundred in Maryland, distributes and stores natural
gas and sells propane.
Under the terms of the agreement, PFG would become a wholly-owned
subsidiary of PP&L Resources. Upon consummation of the merger, each
outstanding PFG common share would be converted into the right to receive
between 6.968 and 8.516 shares of PP&L Resources' Common Stock, and each
outstanding PFG preferred share would be converted into the right to
receive between 0.682 and 0.833 shares of PP&L Resources' Common Stock.
Based upon recent New York Stock Exchange closing prices, PP&L Resources
expects to issue shares of its Common Stock valued at about $121 million to
complete the transaction. The exact conversion rate and number of PP&L
Resources' shares to be issued will be based on the market value of the
Common Stock of PP&L Resources at the time of the merger. The merger is
expected to be treated as a pooling-of-interests for accounting and
financial reporting purposes.
The merger is subject to several conditions, including the receipt of
required approvals by the PUC, the Maryland Public Service Commission and
the SEC. This acquisition does not require the approval of PP&L Resources'
shareholders. The merger is expected to take approximately twelve months
to complete.
In the third quarter of 1997, PP&L Resources will record one-time
transaction costs associated with the merger with PFG, which are expected
to reduce earnings by about six cents per share of common stock.
10. Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or
PP&L's commitments and contingent liabilities since the companies filed
their joint 1996 Form 10-K, except for the discussion below regarding loan
guarantees of affiliated companies and employee relations.
For discussion pertaining to PP&L Resources' and PP&L's financing
matters, see Financial Note 7.
Nuclear Insurance
PP&L 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. PP&L 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,
PP&L could be assessed retroactive premiums in the event of the insurers'
adverse loss experience. The maximum amount PP&L could be assessed under
these programs at June 30, 1997 was about $36 million.
Under provisions of The Price Anderson Amendments Act of 1988, PP&L's
public liability for claims resulting from a nuclear incident at the
Susquehanna station is limited to about $8.9 billion. PP&L 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, PP&L could be
assessed up to $151 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. PP&L has complied
with the Phase I acid rain provisions required to be implemented by 1995 by
installing continuous emission monitors on all units, burning lower sulfur
coal and installing low nitrogen oxide burners on certain units. To comply
with the year 2000 acid rain provisions, PP&L plans to purchase lower
sulfur coal and use banked or purchased emission allowances instead of
installing FGD on its wholly-owned units.
PP&L has met the initial ambient ozone requirements of the Clean Air
Act by reducing nitrogen oxide emissions by 40% through the use of low
nitrogen oxide burners. Further seasonal (i.e., 5 month) nitrogen oxide
reductions to 55% and 75% of pre-Clean Air Act levels for 1999 and 2003,
respectively, are specified under the Northeast Ozone Transport Region's
Memorandum of Understanding. The PA DEP is finalizing regulations which
require PP&L to reduce its ozone seasonal NOx by 57% beginning in 1999.
The Clean Air Act requires the EPA to study the health effects of
hazardous air emissions from power plants and other sources. In this
regard, in November 1996 the EPA proposed new national standards for
ambient levels of ground-level ozone and fine particulates. The new
standards, if implemented, may result in the EPA mandating additional NOx
and SO2 reductions from utility boilers in the 2005-2010 timeframe. NOx
reductions to meet the new ozone standard are likely to be in the range of
the 75% seasonal NOx reductions that are specified under the Memorandum of
Understanding in 2003 and beyond. However, to meet the new fine
particulate standards, the EPA may mandate additional SO2 reductions
significantly greater than those now planned for the acid rain program and
extend the NOx reductions required by the Memorandum of Understanding from
seasonal to year-round.
Expenditures to meet the Memorandum of Understanding requirements for
1999 are included in the table of projected construction expenditures in
the Review of the Financial Condition and Results of Operations under the
caption "Financial Condition - Capital Expenditure Requirements" on page 32
of the 1996 Form 10-K. PP&L currently estimates that additional capital
expenditures and operating costs for environmental compliance under the
Clean Air Act will be incurred beyond 2001 in amounts which are not now
determinable but which could be material.
Water and Residual Waste
DEP residual waste regulations set forth requirements for existing ash
basins at PP&L's coal-fired generating stations. To address these DEP
regulations, PP&L has installed dry fly ash handling systems at most of
its power stations, which eliminate the need for ash basins. In other cases,
PP&L has modified the existing facilities to allow continued operation of
the ash basins under a new DEP permit. Any groundwater contamination
caused by the basins must also be addressed. Any new ash disposal facility
must meet the rigid siting and design standards set forth in the regulations.
Groundwater degradation related to fuel oil leakage from underground
facilities and seepage from coal refuse disposal areas and coal storage
piles has been identified at several PP&L generating stations. Remedial
work is substantially completed at two generating stations. At this time,
there is no indication that remedial work will be required at other PP&L
generating stations.
The current Montour station NPDES permit contains stringent limits for
certain toxic metals and increased monitoring requirements. Depending on
the results of toxic reduction studies in progress, additional water
treatment facilities may be needed at this station.
Capital expenditures through the year 2001 to comply with the residual
waste regulations, correct groundwater degradation at fossil-fueled
generating stations, and address waste water control at PP&L facilities are
included in the table of construction expenditures in the Review of the
Financial Condition and Results of Operations under the caption "Financial
Condition - Capital Expenditure Requirements" on page 32 of the 1996 Form
10-K. In this regard, PP&L currently estimates that $12 million of
additional capital expenditures may be required in the next four years and
$67 million of additional capital expenditures could be required beyond the
year 2001. 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 could be material.
Superfund and Other Remediation
PP&L has signed a consent order with the DEP to address a number of
sites where PP&L may be liable for remediation of contamination. This may
include potential PCB contamination at certain PP&L substations and pole
sites; potential contamination at a number of coal gas manufacturing
facilities formerly owned and operated by PP&L; and oil or other
contamination which may exist at some of PP&L's former generating
facilities.
At June 30, 1997, PP&L had accrued $9.4 million, representing the
amount PP&L can reasonably estimate it will have to spend to remediate
sites involving the removal of hazardous or toxic substances including
those covered by the consent order 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 which PP&L
cannot estimate at this time. In addition, certain federal and state
statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup
Act, empower certain governmental agencies, such as the EPA and the DEP, to
seek compensation from the responsible parties for the lost value of
damaged natural resources. The EPA and the DEP may file such compensation
claims against the parties, including PP&L, held responsible for cleanup of
such sites. Such natural resource damage claims against PP&L could result
in material additional liabilities.
Other Environmental Matters
In addition to the issues discussed above, PP&L may be required to
modify, replace or cease operating certain facilities to comply with other
statutes, regulations and actions by regulatory bodies or courts involving
environmental matters, including the areas of water and air quality,
hazardous and solid waste handling and disposal, toxic substances and
electric and magnetic fields. In this regard, PP&L 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
PMDC has guaranteed a subsidiary's pro rata share of the outstanding
portion of certain debt issuances of an affiliate. At June 30, 1997, $14
million of such loans were guaranteed by PMDC. PMDC's guarantee is
expected to increase to $20 million during 1998, as the affiliate draws
down the balance of its debt facility.
In addition, Spectrum has a $1 million line of credit, which is
guaranteed by PP&L Resources.
Employee Relations
As of June 30, 1997, PP&L had a total of 6,359 full-time employees.
Approximately 65 percent of these employees were represented by the IBEW.
The previous three-year agreement with the IBEW expired in May 1997, and
PP&L and the IBEW agreed to extend all provisions of that labor agreement
through May 1998.
11. New Accounting Standards
During 1997, the FASB issued SFAS 128, Earnings Per Share; SFAS 129,
Disclosure of Information about Capital Structure; SFAS 130, Reporting
Comprehensive Income; and SFAS 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS 128, SFAS 129, and SFAS 131 are
effective for financial statements issued for periods ending after December
15, 1997. SFAS 130 is effective in 1998. The adoption of these statements
is not expected to have a significant impact on PP&L Resources' or PP&L's
financial statements.
<PAGE>
PP&L Resources, Inc. and Pennsylvania Power & Light Company
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Certain statements contained in this Form 10-Q 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 PP&L Resources
and PP&L believe that the expectations 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. The following are
among the important factors that could cause actual results to differ
materially from the forward-looking statements: state and federal
regulatory treatment, especially the PUC's disposition of PP&L's April 1,
1997 restructuring filing; new state or federal legislation; national or
regional economic conditions; weather variations affecting customer usage;
competition in retail and wholesale power markets; the need for and effect
of any business or industry restructuring; PP&L Resources' and PP&L's
profitability and liquidity; new accounting requirements or new
interpretations or applications of existing requirements; system conditions
and operating costs; performance of new ventures; political, regulatory or
economic conditions in foreign countries; exchange rates; and PP&L
Resources' and PP&L's commitments and liabilities. Any such forward-
looking statements should be considered in light of such important factors
and in conjunction with PP&L Resources' and PP&L's other documents on file
with the SEC.
The financial condition and results of operations of PP&L are
currently the principal factors affecting the financial condition and
results of operations of PP&L Resources. All fluctuations, unless
specifically noted, are primarily due to activities of PP&L. All
nonutility operating transactions are included in "Other Income and
(Deductions) - Net" on the PP&L Resources' Consolidated Statement of
Income. This discussion should be read in conjunction with the section
entitled "Review of the Financial Condition and Results of Operations of
PP&L Resources, Inc. and Pennsylvania Power & Light Company" in PP&L
Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year
ended December 31, 1996.
Terms and abbreviations appearing in Management's Discussion and
Analysis of Financial Condition and Results of Operations are explained in
the glossary.
Results of Operations
The following discussion explains material changes in principal items
on the Consolidated Statement of Income comparing the three months and six
months ended June 30, 1997, to the comparable periods ended June 30, 1996.
The Consolidated Statement of Income reflects the results of past
operations and is not intended as any indication of the results of future
operations. Future results of operations will necessarily be affected by
various and diverse factors and developments. Furthermore, because results
for interim periods can be disproportionately influenced by various factors
and developments and by seasonal variations, the results of operations for
interim periods are not necessarily indicative of results or trends for the
year.
Earnings
Comparison of Earnings - June 30
Three Months Ended Six Months Ended
1997 1996 1997 1996
Earnings per share - excluding
weather variances $.39 $.36 $1.15 $1.05
Weather variances on billed sales .02 (0.04) 0.06
Earnings per share - reported $.39 $.38 $1.11 $1.11
Earnings per share, excluding weather variances, improved by $.03 for
the three months ended June 30, 1997, and by $.10 for the first six months
of 1997, when compared with the same periods in 1996. Earnings improvement
for these periods, on a weather-normalized basis, was primarily the net
effect of the following:
June 30, 1997 vs. June 30, 1996
Three Months Six Months
Ended Ended
(per share)
o Higher base rate revenues, due to unbilled
revenues and moderate growth in weather-
normalized sales; $ $0.04
o Net reduction in revenues due to the
phase-down of the contract with JCP&L; (0.02) (0.05)
o Higher PMDC earnings, primarily from SWEB; 0.02 0.05
o Higher other operating revenues, primarily
due to increased sales of reservation of
electrical output to other utilities; 0.03 0.05
o Decrease in preferred dividends, net of
distributions on preferred securities; 0.02 0.02
o Higher depreciation expense due to plant
additions; and (0.01) (0.02)
o Other (0.01) 0.01
Earnings Improvement $0.03 $0.10
The reduction in contractual bulk power sales to JCP&L and other major
utilities will continue to adversely affect earnings over the next few
years. PP&L has increased its efforts to sell this returning energy and
capacity on the open market; however, the price received for this capacity
and energy on the open market is currently less than the amount received
pursuant to the contract.
In addition, the Customer Choice Act, enacted to restructure the
state's electric utility industry to create retail access to a competitive
market for generation of electricity, could have a major impact on the
future financial performance of PP&L. See "PUC Restructuring Proceeding"
for additional information.
In July 1997, the new Labour government in the United Kingdom
announced its budget proposals, which include a windfall profits tax on the
privatized utilities in the U.K. Based on preliminary estimates and PMDC's
25% ownership interest in SWEB, PP&L Resources would incur a one-time
charge against earnings of about 24 cents per share. PP&L Resources
expects to record this charge in the third quarter of 1997. See Financial
Note 8 for additional information on the windfall profits tax.
Electric Energy Sales
The increase (decrease) in PP&L's electric energy sales was
attributable to the following:
June 30, 1997 vs. June 30, 1996
Three Months Six Months
Ended Ended
(Millions of Kwh)
Service Area Sales:
Residential (57) (424)
Commercial 22 (42)
Industrial 54 161
Other (5) (14)
Total Service Area Sales 14 (319)
Wholesale Energy Sales 716 1,116
Total 730 797
Service area sales of 7.5 billion kwh for the three months ended June
30, 1997 were essentially unchanged from the same period in 1996. If
normal weather conditions had been experienced in both the second quarter
of 1996 and 1997, service area sales would have increased by about 117
million kwh, or 1.6%, over the same period of 1996.
Service area sales were 16.4 billion kwh for the six months ended June
30, 1997, a decrease of 319 million kwh, or 1.9%, from the first six months
of 1996. This change was primarily due to a mild winter heating season in
1997 when compared to 1996. Sales to the Residential and Commercial
classes declined by 6.5% and 0.8%, respectively, for the period, and
Industrial sales increased by 3.3%. Under normal weather conditions
service area sales would have increased by about 179 million kwh, or 1.1%,
over the same period of 1996.
Wholesale energy sales, which includes sales to other utilities and
energy marketers, through contracts, spot market transactions or power pool
arrangements, were 4.3 billion kwh for the three months ended June 30,
1997, an increase of 716 million kwh, or 19.8%, from the same period of
1996, despite the reduction in PP&L's contractual bulk power sales to
JCP&L. This increase was primarily the result of the increased spot market
transactions. For the six months ended June 30, 1997, the increase in
wholesale energy sales was 1.1 billion kwh, or 15.9%.
Operating Revenues
The increase in total operating revenues was attributable to the
following:
June 30, 1997 vs. June 30, 1996
Three Months Six Months
Ended Ended
(Millions of Dollars)
Base Rate Revenues - Service Area Sales
Sales volume and sales mix $ 5 $ 8
Unbilled revenues (2) 7
Weather effect (8) (39)
Wholesale Revenues
Energy and capacity 12 21
Reservation charges and other 8 14
Other 2 3
$17 $14
Operating revenues increased by $17 million, or 2.5%, during the three
months ended June 30, 1997, from the same period in 1996. Revenue from
sales of energy and capacity to wholesale customers increased by $12
million over the prior year, despite the phase-down of the capacity and
energy agreement with JCP&L. These results continue to reflect PP&L's
increased emphasis on competing in wholesale markets. This emphasis is
also reflected in the increase in revenues from the sales of capacity
credits, reservation charges and transmission entitlements in the second
quarter of 1997. Moderate sales growth to PUC and FERC jurisdictional
customers also contributed to the increase in revenues. Mild weather
patterns in the second quarter of 1997, in comparison to 1996, offset these
revenue gains by about $8 million.
Operating revenues increased by $14 million, or 1.0%, during the six
months ended June 30, 1997, when compared with the first half of 1996.
Revenue increases are attributable to the same factors identified above for
the second quarter, as well as higher unbilled revenues. However, weather
caused an even more unfavorable impact during the six months ended June 30,
1997, versus June 30, 1996. Weather changes, most notably the extremely
cold winter in 1996 versus a mild winter in 1997, decreased revenues by
about $39 million for this period.
PUC Restructuring Proceeding
In December 1996, Pennsylvania enacted the Customer Choice Act to
restructure its electric utility industry in order to create retail access
to a competitive market for the generation of electricity. In accordance
with that legislation, PP&L filed its restructuring plan with the PUC on
April 1, 1997. Numerous parties have intervened in this proceeding.
The PUC is required to take action on PP&L's filing by January 1998.
Under the Customer Choice Act, the PUC is authorized to determine the
amount of PP&L's stranded costs to be recovered through a non-bypassable
competitive transition charge (CTC) to be paid by all PUC-jurisdictional
customers who receive transmission and distribution service from PP&L.
Stranded costs are defined in the Customer Choice Act as "generation-
related costs... which would have been recoverable under a regulated
environment but which may not be recoverable in a competitive generation
market and which the PUC determines will remain following mitigation by the
electric utility."
PP&L's restructuring plan includes a claim of $4.6 billion for
stranded costs. Pursuant to the Customer Choice Act, this claim is
comprised of the following categories:
1. Net plant investments and costs attributable to existing
generation plants and facilities, disposal of spent nuclear fuel,
retirement costs attributable to existing generating plants and
employee-related transition costs;
2. Prudently incurred costs related to the cancellation, buyout,
buydown or renegotiation of NUG contracts; and
3. Regulatory assets and other deferred charges typically
recoverable under current regulatory practice and cost obligations
under PUC-approved contracts with NUGs.
The following are the components of PP&L's stranded cost claim
included in its rebuttal testimony filed with the PUC in August 1997 (a
net increase of $30 million from the amount included in PP&L's April 1997
filing):
Amount
Category of Stranded Cost (Millions of Dollars)
Nuclear Generation(a) $2,873
Fossil Generation(a) 757
NUG Contracts 657
Regulatory Assets 354
$4,641
(a) Includes deferred income taxes related to generation assets.
In determining the appropriate amount of stranded cost recovery, the
Customer Choice Act requires the PUC to consider the extent to which an
electric utility has taken steps to mitigate stranded costs by appropriate
means that are reasonable under the circumstances. Mitigation efforts
undertaken over time prior to the enactment of the Customer Choice Act are
to be considered of equal importance by the PUC in determining an electric
utility's stranded costs as actions taken after the passage of the Customer
Choice Act. In its restructuring plan, PP&L described its extensive
efforts to mitigate its stranded costs, resulting in a reduction in its
stranded cost claim of over $1 billion.
In July 1997, testimony was filed by eleven other parties in the
restructuring proceeding. In this regard, the PUC's OTS recommends that
PP&L be permitted to recover $3.2 billion of its stranded costs; the PP&L
Industrial Customer Alliance recommends recovery of $661 million; and the
OCA recommends recovery of $383 million. Under Pennsylvania law, in
proceedings before the PUC, the OCA and the OTS have advocacy roles.
Testimony filed by the OCA and OTS carries no more weight than testimony
filed by any party in the proceeding.
Evidentiary hearings in this matter will be held in late August.
A recommended decision from the Administrative Law Judge hearing the
case is expected by mid-November, with a final PUC order due in January
1998. PP&L cannot predict the outcome of this proceeding.
The ultimate impact of the Customer Choice Act on PP&L's financial
health will depend on numerous factors, including:
1. The amount of stranded cost recovery approved by the PUC, the
PUC's overall treatment of PP&L's filing and the effect of the rate cap
imposed under the provisions of the Customer Choice Act;
2. The actual market price of electricity over the transition period;
3. Future sales levels; and
4. The extent to which the regulatory framework established by the
Customer Choice Act will continue to be applied.
Under the Customer Choice Act, PP&L's rates to PUC-jurisdictional
customers are capped at the level in effect on January 1, 1997 through mid-
2001 for transmission and distribution services and through the year 2005
for generation customers. By applying the CTC proposed in its
restructuring plan (which is restricted by the rate cap) through the year
2005, PP&L anticipates collecting approximately $4 billion of its stranded
costs. Based on these projections, the remaining $600 million would be
reflected as lower cash flow to PP&L after the transition period than would
have occurred with continued regulated rates.
In this regard, it should be noted that PP&L's stranded cost claim
included in the restructuring plan is based on a projection of future
market prices and assumes a significant portion of PP&L's stranded costs
will be recovered by way of increased market prices for electricity. This
increase may or may not occur. To the extent that the market price of
electricity does not increase as projected, or other projections such as
future sales levels do not actually occur, PP&L could experience a lower
recovery of stranded costs.
If the PUC permits full recovery of PP&L's stranded costs, including
full recovery of all regulatory assets and above-market NUG costs over the
transition period, PP&L estimates that its net income over the transition
period would be reduced by about 5% of projected net income.
However, the PUC may make adjustments to components or assumptions
included in the restructuring plan that could have an adverse effect on the
amount of the CTC or the categories of stranded costs that are recoverable
through the CTC. As a result of these uncertainties, PP&L cannot determine
whether and to what extent it may be subject to a write-off or a reduction
in earnings until the PUC issues an order with respect to the restructuring
plan. Based on the substantial amounts involved in the restructuring plan,
should PP&L be required to incur a write-off, it could be material in
amount. Accordingly, PP&L is unable to predict the ultimate effect of the
Customer Choice Act or the PUC's disposition of the restructuring plan on
its financial position, results of operation or its need or ability to
issue securities to meet future capital requirements.
The Customer Choice Act permits the issuance of "transition bonds"
securitized by CTC revenues to finance the payment of stranded costs. PP&L
is considering whether to seek to securitize some portion of its stranded
cost claim, which would require the approval of the PUC in a qualified rate
order.
In a related matter, certain parties filed suits in March 1997 in
Pennsylvania Commonwealth Court challenging the constitutionality of the
Customer Choice Act. PP&L has intervened in this proceeding in support of
the Customer Choice Act.
Rate Matters
Reference is made to PP&L Resources' and PP&L's Annual Report to the
SEC on Form 10-K for the year ended December 31, 1996, regarding the PUC
Decision. The OCA appealed three issues from the PUC Decision to the
Pennsylvania Commonwealth Court. In May 1997, the Commonwealth Court
issued its opinion on the OCA's appeal.
The first issue was the recovery of deferrals under SFAS 106. PP&L
had requested recovery of $27 million of increased costs for post-
retirement benefits caused by the change to accrual accounting of those
costs under SFAS 106. The PUC had allowed this recovery, and the
Commonwealth Court upheld the PUC's decision.
The second issue was the recovery of $19 million of carrying charges
and operating expenses incurred from the date of commercial operation of
Susquehanna Unit 2 until the plant was recognized in rates. PP&L had
requested recovery of those costs to be amortized over ten years. The PUC
had allowed this recovery, and the Commonwealth Court upheld the PUC's
decision.
The third issue was the recovery of Gross Receipts Tax (GRT) on
uncollectible revenues. PP&L had requested an allowance for GRT on the
full amount of revenue approved by the PUC, while the OCA had proposed a
$745,000 adjustment to disallow GRT on revenues that PP&L will not be able
to collect. The PUC had rejected the OCA's proposed adjustment. The
Commonwealth Court reversed the PUC and remanded that issue to the PUC for
recalculation of the allowance.
In June 1997, the OCA filed a petition for allowance of appeal with
the Pennsylvania Supreme Court requesting review of the Commonwealth
Court's decision on the SFAS 106 issue. PP&L and the PUC have filed briefs
opposing the OCA's petition. This is not an appeal of right and the
Supreme Court has the discretion to grant or deny the OCA's request for
review. PP&L cannot predict the final outcome of this matter.
In January 1996, PP&L filed a request with the FERC to incorporate a
change in the method of calculating depreciation under its contracts with
four major electric utility customers (Atlantic, BG&E, JCP&L, and UGI).
PP&L also sought to increase the charges to those customers for nuclear
decommissioning costs. A settlement of this case was approved by the FERC
in June 1997, under terms which have no material effect on PP&L.
Power Purchases
Purchased power for the three and six months ended June 30, 1997
increased $30 million and $55 million, respectively, over the comparable
periods in 1996. These increases were primarily due to greater quantities
of power purchased from other utilities to meet planned and unplanned
outages at the Susquehanna station and to meet increased energy marketing
activities.
Other Operation and Maintenance Expense
Other operation and maintenance expenses decreased by $12 million and
$22 million, respectively, for the three and six months ended June 30, 1997
over the comparable periods in 1996. Excluding the effect of
underrecovered energy costs, operation and maintenance expenses remained
essentially unchanged from 1996. Beginning in 1997, underrecovered energy
costs are recorded as a reduction of operating expense; prior to 1997,
these underrecovered costs were accrued as energy revenues.
Other Income and (Deductions) - Net
Other income and deductions increased during the three and six months
ended June 30, 1997 when compared with the same periods in 1996. These
increases reflect improvements in PMDC's earnings, largely due to the
acquisition of an interest in SWEB in July 1996. The increased earnings
from PMDC were partially offset by decreases in the earnings of CEP's
investments. About $99 million of CEP's investments were liquidated in the
first six months of 1997 to make funds available for other corporate
investments.
Financial Condition
Financing Activities
The following financings have occurred through July 31, 1997:
o From January through July 1997, PP&L Resources issued $51 million
of common stock through the DRIP.
o In April 1997, PP&L redeemed $210 million principal amount of four
series of first mortgage bonds.
o PP&L Resources obtained 79.09% of the outstanding preferred stock
of PP&L pursuant to a tender offer in March and April 1997.
o To provide financing for a portion of this tender offer, PP&L
arranged for two Delaware statutory business trusts to issue a
total of $250 million of preferred securities supported by a
corresponding amount of junior subordinated deferrable interest
debentures issued by PP&L to the trusts. Specifically in April
and June 1997 the trusts issued $100 million and $150 million of
preferred securities, respectively.
o PP&L Resources' $300 million revolving credit facility was
extended to the end of November 1997. In April 1997, PP&L
Resources repaid $35 million of the $135 borrowed under this
facility. In July 1997, PP&L Resources borrowed an additional $90
million to finance a portion of PMDC's purchase of a 25.05%
interest in Emel.
Refer to Financial Note 7 for additional information.
Financing and Liquidity
The change in cash and cash equivalents for the six months ended June
30, 1997 decreased $237 million for PP&L Resources from the comparable
period in 1996. The reasons for this change were:
o A $47 million decrease in cash provided by operating activities due to
cash outflows for a refueling outage of Susquehanna Unit 2 and a
buyout of a contract with a non-utility generator.
o A $313 million increase in cash used in financing activities as a
result of PP&L Resources acquiring 79% of PP&L preferred stock for a
cost, including a premium and associated costs of purchase, of $380
million. There was also a $106 decrease in the issuance of long-term
debt and a $65 million increase in the retirement of long-term debt.
Offsetting these financing activities was the issuance of $250 million
of preferred securities.
o A $123 million decrease in cash used in investing activities due to a
few subsidiaries liquidating long-term investments to make funds
available for other investments.
PP&L's projected internally generated funds would be sufficient to
permit PP&L to retire about $550 million of its long-term debt during 1998-
2001.
Outside financing, in amounts not currently determinable, or the
liquidation of certain financial investments, may be required over the next
five years to finance investment opportunities in worldwide energy projects
by PMDC.
Financial Indicators
The ratio of pre-tax income to interest charges remained unchanged at
3.8 for the six months ended June 30, 1997, compared to the same period in
1996. The annual per share dividend rate on common stock was also
unchanged at $1.67 per share. The ratio of the market price to book value
of common stock was 116% at June 30, 1997, compared with 142% at June 30,
1996.
Unregulated Investments
PMDC continues to pursue opportunities to develop and acquire electric
generation, transmission and distribution facilities in the United States
and abroad.
As of June 30, 1997, PMDC had investments and commitments in the
amount of approximately $370 million in distribution, transmission and
generation facilities in the United Kingdom, Bolivia, Peru, Argentina,
Spain, Portugal and Chile. PMDC's principal investments to date are in
SWEB and Emel. Refer to Financial Note 8 for information regarding the
effect of the U.K.'s windfall profits tax on SWEB.
In July 1997, PMDC purchased a 25.05 percent interest in Emel for
approximately $115 million. Emel is a Chilean holding company that has
majority interests in six electric distribution companies located in Chile
and Bolivia. Emel's electric distribution company holdings make it the
third largest distributor of electricity in Chile and the second largest in
Bolivia, serving a total of 535,000 customers in those countries.
Contemporaneously with financial closing, which occurred in July 1997, PMDC
entered into a shareholders' agreement that enables PMDC and another major
shareholder, Las Espigas Group, to control Emel's board of directors. The
$115 million purchase price is included in the $370 million of investments
and commitments discussed above.
PP&L Resources' other unregulated subsidiary, Spectrum, offers energy-
related products and services to PP&L's existing customers and to others
outside of PP&L's service territory. Other subsidiaries may be formed by
PP&L Resources to take advantage of new business opportunities.
Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or
PP&L's commitments and contingent liabilities since the companies filed
their joint 1996 Form 10-K, except for the discussions in Financial Note 10
- -- "Commitments and Contingent Liabilities" regarding loan guarantees of
affiliated companies and employee relations.
Increasing Competition
Background
The electric utility industry has experienced and will continue to
experience a significant increase in the level of competition in the energy
supply market. PP&L has publicly expressed its support for full customer
choice of electricity suppliers for all customer classes. PP&L is actively
involved in efforts at both the state and federal levels to encourage a
smooth transition to full competition. PP&L believes that this transition
to full competition should provide for the recovery of a utility's stranded
costs, which are generation-related costs that traditionally would be
recoverable in a regulated environment but which may not be recoverable in
a competitive electric generation market.
Pennsylvania Activities
Reference is made to "PUC Restructuring Proceeding" for a discussion
of PP&L's April 1997 filing of its restructuring plan pursuant to the
Customer Choice Act.
PP&L has filed a proposed retail access pilot program with the PUC in
accordance with the applicable provisions of the Customer Choice Act and
PUC guidelines. Under its pilot program, approximately 54,000 PP&L
residential, commercial and industrial customers -- representing about 5%
of PP&L's average annual peak load -- will have an opportunity to purchase
energy and capacity from alternative suppliers. PP&L will provide all
transmission and distribution, customer service and back-up energy supply
services to participating customers. Only those alternative suppliers
licensed by the PUC and in compliance with the state tax obligations set
forth in the Customer Choice Act may participate in the pilot programs.
In May 1997, the PUC issued a preliminary opinion and order approving
and revising PP&L's proposed pilot program. PP&L has filed comments to the
Commission's preliminary order. The other major electric utilities in
Pennsylvania received similar preliminary orders and filed comments. A
number of the major parties entered into a joint settlement agreement
resolving all of the issues in these proceedings. Although not signatories
to the joint settlement agreement, the OCA and the OSBA filed letters
indicating that they did not object to it. Several alternative suppliers
and an environmental group have opposed the settlement. Evidentiary
hearings have been held regarding the reasonableness of the settlement, and
a PUC final order is expected by the end of August.
In June 1997, the PUC approved PP&L's application for a license to act
as an electric generation supplier. This license will permit PP&L to
participate in the various retail access pilot programs of other
Pennsylvania utilities presently under review by the PUC.
Federal Activities
Legislation has been introduced in the U.S. Congress that would give
all retail customers the right to choose among competitive suppliers of
electricity as early as 2000.
In addition, in April 1996 the FERC adopted rules on competition in
the wholesale electricity market primarily dealing with open access to
transmission lines, recovery of stranded costs, and information systems for
displaying available transmission capability (FERC Orders 888 and 889).
These rules required all electric utilities to file open access
transmission tariffs by July 9, 1996. The rules also provided that
utilities are entitled to recover from certain wholesale requirements
customers all "legitimate, verifiable, prudently incurred stranded costs."
The FERC has provided recovery mechanisms for wholesale stranded costs,
including stranded costs resulting from municipalization. Wholesale
contracts signed after July 11, 1994 must contain explicit provisions
addressing recovery of stranded costs. For requirements contracts signed
before that date, a utility may seek recovery if it can show that it had a
reasonable expectation of continuing to serve the customer after the
contract term. Finally, the rules required that power pools file pool-wide
open access transmission tariffs and modified bilateral coordination
agreements reflecting the removal of discriminatory provisions by December
31, 1996.
In July 1996, PP&L filed the open access transmission tariff required
by FERC Order 888. Under the new FERC rules, that tariff became effective
on July 9, 1996, subject to refund. The non-rate terms and conditions of
that tariff were accepted by FERC. Several parties moved to intervene and
protested the new rates. On July 31, 1997, FERC rejected PP&L's rates and
ordered that the pre-existing rates, which had been placed into effect on
May 27, 1996, be inserted into the tariff.
In March 1997, the FERC issued Orders 888-A and 889-A. Among other
things, these orders required utilities to make certain changes to the non-
rate terms and conditions of their open access transmission tariffs. In
July 1997, in compliance with Order 888-A, PP&L filed a revised open access
transmission tariff. PP&L also requested in that filing that FERC approve
certain transmission tariff rate changes. The FERC has not yet acted on
that filing.
Under the new rules, 16 small utilities which have power supply
agreements with PP&L signed before July 11, 1994, requested and were
provided with PP&L's current estimate of its stranded costs applicable to
these customers if they were to terminate their agreements in 1999. Based
upon a formula set forth in FERC Order 888 and applicable only to wholesale
requirements customers, and based upon data unique to the agreements
between PP&L and these customers, PP&L estimated that the stranded costs
associated with service to these wholesale customers would be approximately
$125 million. As a result of a protest by these parties against such
recovery, hearings were conducted at FERC in March 1997 and June 1997
regarding PP&L's right to recover these stranded costs. Further
proceedings in this matter have been suspended pending the negotiation and
approval by the FERC of a settlement with these customers.
In December 1996, the PJM companies submitted a compliance filing with
the FERC, which proposed a pool-wide pro forma transmission tariff and a
revised interconnection agreement and transmission owners agreement
designed to accommodate open, non-discriminatory participation in the pool.
FERC accepted the PJM tariff and proposed rates, subject to refund, and
they went into effect on March 1, 1997. In June 1997, all of the PJM
companies, except PECO, filed with the FERC proposals to amend the PJM
tariff and restructure the PJM pool. PECO filed a separate request with
the FERC to amend the PJM tariff and restructure the PJM pool. The FERC
has not yet acted on these filings.
In July 1997, FERC accepted a new wholesale power tariff that permits
PP&L to sell capacity and energy at market-based rates, both inside and
outside the PJM area, subject to certain conditions. This tariff allows
PP&L to become more active in the wholesale market with utilities and other
entities, and removes pricing restrictions which in the past had limited
PP&L to charging at or below cost-based rates.
<PAGE>
PP&L RESOURCES, INC. AND
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Notes to Financial Statements for information
concerning rate matters.
Item 4. Submission of Matters to a Vote of Security Holders
At PP&L Resources' Annual Meeting of Shareowners held on April 23,
1997, the shareowners:
(1) Elected all four nominees for the office of director. The vote
for all nominees was 125,074,853. The votes for individual nominees
were as follows:
Number of Votes
For Withhold Authority
E. Allen Deaver 123,958,177 3,294,214
Nance K. Dicciani 123,932,317 3,320,074
Elmer D. Gates 123,538,150 3,714,241
Norman Robertson 123,760,294 3,492,097
The vote to withhold authority for all nominees was 2,177,538.
(2) Ratified the appointment of Price Waterhouse LLP as independent
auditors for year ended December 31, 1997. The vote was 124,872,330
in favor and 1,169,088 against, with 1,210,973 abstaining.
At PP&L's Annual Meeting of Shareowners held on April 23, 1997, the
shareowners:
(1) Elected all four nominees for the office of director. The vote
for all nominees was 160,565,641. The votes for individual nominees
were as follows:
Number of Votes
For Withhold Authority
E. Allen Deaver 160,570,090 5,849
Nance K. Dicciani 160,569,761 6,178
Elmer D. Gates 160,568,987 6,952
Norman Robertson 160,569,566 6,373
The vote to withhold authority for all nominees was 5,849.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report dated April 2, 1997 and May 2, 1997
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
Information regarding PP&L's restructuring plan filed with the PUC
pursuant to the provisions of Pennsylvania's Customer Choice Act.
Report dated June 30, 1997
Item 5. Other Events
Information regarding PP&L Resources' acquisition of Penn Fuel
Gas, Inc.
<PAGE>
Glossary of Terms and Abbreviations
Atlantic - Atlantic City Electric Company
BG&E - Baltimore Gas & Electric Company
CEP (CEP Group, Inc.) - a wholly-owned subsidiary of PP&L
Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation
passed by Congress to address environmental issues including acid rain,
ozone and toxic air emissions
CTC - Competitive transition charge
Customer Choice Act - Electricity Generation Customer Choice and
Competition Act
DEP - Pennsylvania Department of Environmental Protection
DRIP (Dividend Reinvestment Plan) - program available to shareowners of
PP&L Resources' common stock and PP&L preferred stock to reinvest dividends
in PP&L Resources' common stock instead of receiving dividend checks
EITF - Emerging Issues Task Force
Emel - Empresas Emel, S.A., a Chilean electric distribution holding company
EPA - Environmental Protection Agency
FASB (Financial Accounting Standards Board) - a rulemaking organization
that establishes financial accounting and reporting standards
FGD - Flue gas desulfurization equipment installed at coal-fired power
plants to reduce sulfur dioxide emissions
FERC (Federal Energy Regulatory Commission) - government agency that
regulates interstate transmission and sale of electricity and related
matters
GRT - Gross Receipts Tax
IBEW - International Brotherhood of Electrical Workers
JCP&L - Jersey Central Power & Light Company
Major utilities - Atlantic, BG&E and JCP&L
NOx - Nitrogen oxide
NPDES - National Pollutant Discharge Elimination System
NUG (Non-Utility Generator) - generating plant not owned by regulated
utilities. If the NUG meets certain criteria, its electrical output must
be purchased by public utilities as required by PURPA.
OBSA - Office of Small Business Advocate
OCA - Pennsylvania Office of Consumer Advocate
OTS - Office of Trial Staff
PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical
equipment up to the late 1970s. Now classified as a hazardous chemical.
PECO - PECO Energy Company
PFG - Penn Fuel Gas, Inc.
PJM (Pennsylvania - New Jersey - Maryland Interconnection Association) -
Mid-Atlantic power pool consisting of 11 operating electric utilities,
including PP&L
PMDC (Power Markets Development Company) - PP&L Resources' unregulated
subsidiary formed to invest in and develop world-wide power markets
PP&L - Pennsylvania Power & Light Company
PP&L Resources (PP&L Resources, Inc.) - parent holding company of PP&L,
PMDC and Spectrum
preferred securities - Company-obligated mandatorily redeemable preferred
securities
PUC (Pennsylvania Public Utility Commission) - agency that regulates
certain ratemaking, accounting, and operations of Pennsylvania utilities
PUC Decision - final order issued by the PUC on September 27, 1995
pertaining to PP&L's base rate case filed in December 1994
SEC - Securities and Exchange Commission
SFAS (Statement of Financial Accounting Standards) - accounting and
financial reporting rules issued by the FASB
Small utilities - utilities subject to FERC jurisdiction whose billings
include base rate charges and a supplemental charge or credit for fuel
costs over or under the levels included in base rates
SO2 - Sulfur dioxide
Spectrum (Spectrum Energy Services Corporation) - PP&L Resources'
unregulated subsidiary formed to offer energy related products and services
Superfund - Federal and state legislation that addresses remediation of
contaminated sites
SWEB - South Western Electricity Board plc, a British regional electric
utility company
UGI - UGI Corporation
U.K. - United Kingdom
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. The signature for each
undersigned company shall be deemed to relate only to matters having
reference to such company or its subsidiary.
PP&L Resources, Inc.
(Registrant)
Pennsylvania Power & Light Company
(Registrant)
Date: August 14, 1997 /s/ R. E. Hill
R. E. Hill
Senior Vice President-Financial
(PP&L Resources, Inc. and
Pennsylvania Power & Light Company)
/s/ J. J. McCabe
J. J. McCabe
Vice President & Controller (PP&L
Resources, Inc. and Pennsylvania
Power & Light Company)
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of income, consolidated balance sheet, and consolidated
statement of cash flows for the form 10-Q dated June 30, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> PP&L RESOURCES, INC.
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