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 September 30, 1996 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, 162,280,159 shares outstanding at October 31, 1996 Pennsylvania Power & Light Co. Common stock, no par value, 157,300,382, shares outstanding and all held by PP&L Resources, Inc. at October 31, 1996
PP&L RESOURCES, INC. AND PENNSYLVANIA POWER & LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED September 30, 1996 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements PP&L Resources, Inc. Consolidated Statements of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Pennsylvania Power & Light Company Consolidated Statements 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 6. Exhibits and Reports on Form 8-K GLOSSARY OF TERMS AND ABBREVIATIONS SIGNATURES
<TABLE> PP&L RESOURCES, INC. AND SUBSIDIARIES Part 1. FINANCIAL INFORMATION Item 1. Financial Statements In the opinion of PP&L Resources, Inc. (PP&L Resources), the unaudited financial statements, included herein, reflect all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 1996 and the Consolidated Statements of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 1996 and 1995. PP&L Resources is the parent holding company of Pennsylvania Power & Light Company (PP&L), Power Markets Development Company (PMDC) and Spectrum Energy Services Corporation (Spectrum). PP&L comprises 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 Statements of Income. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars, except per share data) <CAPTION> Three Months Ended September 30, 1996 1995 <S> <C> <C> Operating Revenues ............................... $715 $682 Operating Expenses Operation Fuel......................................... 124 130 Power purchases.............................. 84 66 Other........................................ 138 107 Maintenance..................................... 40 39 Depreciation (including amortized depreciation). 91 87 Income taxes.................................... 52 92 Taxes, other than income........................ 50 48 Voluntary early retirement program......................... (66) 579 503 Operating Income .................................. 136 179 Other Income and (Deductions) - Net 6 (28) Income Before Interest Charges & Dividends on Preferred Stock ........................................... 142 151 Interest Charges Long-term debt.................................. 52 53 Short-term debt and other....................... 4 4 56 57 Preferred Stock Dividend Requirements.............. 7 7 Net Income......................................... $79 $87 Earnings Per Share of Common Stock (a) ............ $0.49 $0.55 Average Number of Shares Outstanding (thousands)....................................... 161,360 158,131 Dividends Declared Per Share of Common Stock............................................. $0.4175 $0.4175 <FN> (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars, except per share data) <CAPTION> Nine Months Ended September 30, 1996 1995 <S> <C> <C> Operating Revenues ............................... $2,173 $2,018 Operating Expenses Operation Fuel......................................... 349 336 Power purchases.............................. 249 214 Other........................................ 387 345 Maintenance..................................... 136 124 Depreciation (including amortized depreciation) 272 262 Income taxes.................................... 193 210 Taxes, other than income........................ 156 149 Voluntary early retirement program......................... (66) 1,742 1,574 Operating Income .................................. 431 444 Other Income and (Deductions) - Net 10 (21) Income Before Interest Charges & Dividends on Preferred Stock ........................................... 441 423 Interest Charges Long-term debt.................................. 155 161 Short-term debt and other....................... 9 8 164 169 Preferred Stock Dividend Requirements.............. 21 21 Net Income......................................... $256 $233 Earnings Per Share of Common Stock (a) ............ $1.60 $1.48 Average Number of Shares Outstanding (thousands)....................................... 160,650 157,187 Dividends Declared Per Share of Common Stock............................................. $1.2525 $1.2525 <FN> (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars) <CAPTION> September 30, December 31, 1996 1995 (Unaudited) (Audited) <S> <C> <C> ASSETS Property, Plant and Equipment Electric utility plant in service - at original cost........................... $9,772 $9,637 Accumulated depreciation .................. (3,299) (3,113) Deferred depreciation ..................... 158 209 6,631 6,733 Construction work in progress - at cost...... 183 170 Nuclear fuel owned and leased - net of amortization ........................... 151 134 Other leased property - net of amortization . 79 85 Electric utility plant - net............... 7,044 7,122 Other property - (net of depreciation, amortization and depletion 1996, $58; 1995, $56).................................. 56 57 7,100 7,179 Investments Affiliated companies - at equity ............ 227 29 Nuclear plant decommissioning trust fund .... 120 109 Financial investments........................ 138 142 Other - at cost or less ..................... 16 9 501 289 Current Assets Cash and cash equivalents ................... 100 20 Current financial investments ............... 110 96 Accounts receivable (less reserve: 1996, $37; 1995, $35)................................. 188 211 Unbilled revenues............................ 79 92 Fuel - at average cost....................... 81 82 Materials and supplies - at average cost..... 106 108 Prepayments.................................. 29 11 Deferred income taxes ....................... 40 42 Other........................................ 25 31 758 693 Deferred Debits Taxes recoverable through future rates....... 976 1,003 Other ....................................... 292 328 1,268 1,331 $9,627 $9,492 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars) <CAPTION> September 30, December 31, 1996 1995 (Unaudited) (Audited) LIABILITIES <S> <C> <C> Capitalization Common equity Common stock............................... $2 $2 Capital in excess of par value ............ 1,566 1,513 Earnings reinvested ....................... 1,138 1,083 Capital stock expense and other ........... (3) (1) 2,703 2,597 Preferred stock With sinking fund requirements............. 295 295 Without sinking fund requirements.......... 171 171 Long-term debt............................... 2,832 2,829 6,001 5,892 Current Liabilities Commercial paper ................................ 68 Bank loans .................................. 219 21 Long-term debt due within one year............... 30 Capital lease obligations due within one year 80 81 Accounts payable............................. 126 128 Taxes accrued................................ 38 47 Interest accrued............................. 62 66 Dividends payable............................ 74 74 Other........................................ 78 86 677 601 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits ............. 212 219 Deferred income taxes ....................... 2,049 2,106 Capital lease obligations ................... 134 139 Other ....................................... 554 535 2,949 2,999 Commitments and Contingent Liabilities (See Note 5)..................................... $9,627 $9,492 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Millions of Dollars) <CAPTION> Nine Months Ended September 30, 1996 1995 <S> <C> <C> Cash Flows From Operating Activities Net income............................................ $256 $233 Adjustments to reconcile net income to net cash provided by operating activities Depreciation....................................... 274 264 Amortization of property under capital leases...... 63 61 Voluntary early retirement program......................... (66) Change in current assets and current liabilities 5 14 Other operating activities - net................... 34 33 Net cash provided by operating activities....... 632 539 Cash Flows From Investing Activities Property, plant and equipment expenditures............ (250) (318) Purchases of available-for-sale securities............ (405) (248) Sales and maturities of available-for-sale securities. 392 243 Net purchases and sales of other financial investments (203) (9) Other investing activities - net...................... 45 48 Net cash used in investing activities........... (421) (284) Cash Flows From Financing Activities Issuance of long-term debt............................ 116 55 Issuance of common stock.............................. 53 57 Retirement of long-term debt.......................... (145) (140) Payments on capital lease obligations................. (63) (61) Common and preferred dividends paid................... (221) (217) Net increase in short-term debt....................... 130 61 Other financing activities - net...................... (1) (11) Net cash used in financing activities........... (131) (256) Net Increase(Decrease) In Cash and Cash Equivalents ... 80 (1) Cash and Cash Equivalents at Beginning of Period ...... 20 10 Cash and Cash Equivalents at End of Period ............ $100 $9 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Interest (net of amount capitalized)................. $156 $162 Income taxes......................................... $224 $196 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES In the opinion of Pennsylvania Power & Light Company (PP&L), the unaudited financial statements, included herein, reflect all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 1996 and the Consolidated Statements of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 1996 and 1995. All nonutility operating transactions are included in "Other Income and (Deductions) - Net" in PP&L's Consolidated Statements of Income. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars) <CAPTION> Three Months Ended September 30, 1996 1995 <S> <C> <C> Operating Revenues ............................... $715 $682 Operating Expenses Operation Fuel......................................... 124 130 Power purchases.............................. 84 66 Other........................................ 138 107 Maintenance..................................... 40 39 Depreciation (including amortized depreciation) 91 87 Income taxes.................................... 52 92 Taxes, other than income........................ 50 48 Voluntary early retirement program......................... (66) 579 503 Operating Income .................................. 136 179 Other Income and (Deductions) - Net 3 (28) Income Before Interest Charges..................... 139 151 Interest Charges Long-term debt.................................. 52 53 Short-term debt and other....................... 1 3 53 56 Net Income......................................... 86 95 Dividends on Preferred Stock....................... 7 7 Earnings Available to PP&L Resources, Inc. ....... $79 $88 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars) <CAPTION> Nine Months Ended September 30, 1996 1995 <S> <C> <C> Operating Revenues ............................... $2,173 $2,018 Operating Expenses Operation Fuel......................................... 349 336 Power purchases.............................. 249 214 Other........................................ 387 345 Maintenance..................................... 136 124 Depreciation (including amortized depreciation) 272 262 Income taxes.................................... 193 210 Taxes, other than income........................ 156 149 Voluntary early retirement program......................... (66) 1,742 1,574 Operating Income .................................. 431 444 Other Income and (Deductions) - Net 9 (20) Income Before Interest Charges..................... 440 424 Interest Charges Long-term debt.................................. 155 161 Short-term debt and other....................... 5 8 160 169 Net Income......................................... 280 255 Dividends on Preferred Stock....................... 21 21 Earnings Available to PP&L Resources, Inc. ........ $259 $234 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars) <CAPTION> September 30, December 31, 1996 1995 (Unaudited) (Audited) <S> <C> <C> ASSETS Property, Plant and Equipment Electric utility plant in service................ $9,772 $9,637 Accumulated depreciation....................... (3,299) (3,113) Deferred depreciation.......................... 158 209 6,631 6,733 Construction work in progress.................... 183 170 Nuclear fuel owned and leased - net of amortization................................ 151 134 Other leased property - net of amortization ..... 79 85 Electric utility plant - net................... 7,044 7,122 Other property - net of depreciation, amortization and depletion (1996, $58; 1995, $56) .................................... 56 57 7,100 7,179 Investments Affiliated company - at equity................... 17 17 Nuclear plant decommissioning trust fund ........ 120 110 Financial investments............................ 130 132 Other - at cost or less.......................... 10 9 277 268 Current Assets Cash and cash equivalents........................ 96 15 Current financial investments ................... 52 55 Accounts receivable (less reserve: 1996, $37; 1995, $35)..................................... 187 210 Unbilled revenues................................ 79 92 Fuel - at average cost........................... 81 82 Materials and supplies - at average cost......... 106 108 Prepayments...................................... 29 11 Deferred income taxes............................ 40 42 Other............................................ 25 31 695 646 Deferred Debits Taxes recoverable through future rates........... 976 1,003 Other............................................ 292 328 1,268 1,331 $9,340 $9,424 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars) <CAPTION> September 30, December 31, 1996 1995 (Unaudited) (Audited) <S> <C> <C> LIABILITIES Capitalization Common equity Common stock................................ $1,476 $1,476 Additional paid-in capital ................. 48 25 Earnings reinvested......................... 1,091 1,034 Capital stock expense and other ............ (10) (7) 2,605 2,528 Preferred stock With sinking fund requirements.............. 295 295 Without sinking fund requirements........... 171 171 Long-term debt................................ 2,832 2,829 5,903 5,823 Current Liabilities Commercial paper................................... 68 Bank loans.................................... 30 21 Long-term debt due within one year................. 30 Capital lease obligations due within one year. 80 81 Accounts payable.............................. 126 128 Taxes accrued................................. 39 48 Interest accrued.............................. 62 66 Dividends payable............................. 74 74 Other......................................... 78 86 489 602 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits............... 212 219 Deferred income taxes......................... 2,048 2,106 Capital lease obligations..................... 134 139 Other......................................... 554 535 2,948 2,999 Commitments and Contingent Liabilities (See Note 5)....................................... $9,340 $9,424 See accompanying Notes to Financial Statements. </TABLE>
<TABLE> PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Millions of Dollars) <CAPTION> Nine Months Ended September 30, 1996 1995 <S> <C> <C> Cash Flows From Operating Activities Net income............................................ $280 $255 Adjustments to reconcile net income to net cash provided by operating activities Depreciation....................................... 274 264 Amortization of property under capital leases...... 63 61 Voluntary early retirement program............................ (66) Change in current assets and current liabilities 5 14 Other operating activities - net................... 12 12 Net cash provided by operating activities....... 634 540 Cash Flows From Investing Activities Property, plant and equipment expenditures............ (250) (318) Purchases of available-for-sale securities............ (84) (67) Sales and maturities of available-for-sale securities. 87 65 Other investing activities - net...................... 45 49 Net cash used in investing activities........... (202) (271) Cash Flows From Financing Activities Issuance of long-term debt............................ 116 55 Retirement of long-term debt.......................... (145) (140) Payments on capital lease obligations................. (63) (61) Common and preferred dividends paid................... (221) (217) Net increase(decrease) in short-term debt............. (59) 61 Other financing activities - net...................... 21 28 Net cash used in financing activities........... (351) (274) Net Increase(Decrease) In Cash and Cash Equivalents ... 81 (5) Cash and Cash Equivalents at Beginning of Period ...... 15 9 Cash and Cash Equivalents at End of Period ............ $96 $4 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Interest (net of amount capitalized)................. $156 $162 Income taxes......................................... $226 $197 See accompanying Notes to Financial Statements. </TABLE>
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 on page 28. 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 Report to the SEC on Form 10-K for the year ended December 31, 1995. Certain amounts from prior periods' financial statements have been reclassified to conform to the presentation in the September 30, 1996 financial statements. 2. Rate Matters - PP&L 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, 1995 regarding the PUC Decision. The OCA has appealed certain aspects of the PUC Decision to the Commonwealth Court. PP&L cannot predict the final outcome of this matter. Energy Cost Rate Issues In March 1996, the PUC approved PP&L's 1996-97 ECR, effective April 1, 1996. The ECR reflects a $42 million decrease in energy costs from the previous ECR. This is largely due to lower coal prices, only one nuclear refueling outage, the start of gas and oil dual fuel capability at Martins Creek Units 3 and 4, and the end of a settlement adjustment charge for replacement power costs. 3. Sales to Other Major Electric Utilities - PP&L In March 1996, the New Jersey Board of Public Utilities approved an agreement between PP&L and JCP&L, under which PP&L will provide JCP&L with 150,000 kilowatts of capacity credits and energy from June 1997 through May 1998, 200,000 kilowatts from June 1998 through May 1999 and 300,000 kilowatts from June 1999 through May 2004. Prices under the new agreement are based on a predetermined reservation rate that escalates over time, plus an energy component based on PP&L's actual fuel-related costs. PP&L filed the agreement for FERC review and acceptance in October 1996. In September 1996, PP&L made installed capacity credit sales for up to 300,000 kilowatts to GPU Energy which will continue through the first half of 1997. 4. Credit Arrangements and Financing Activity - PP&L Resources/PP&L During the third quarter of 1996, 763,810 shares of PP&L Resources' common stock ($18 million) were issued through the DRIP. In October 1996, PP&L Resources issued an additional 686,615 shares of common stock ($15 million) through the DRIP. As of September 30, 1996, 161,593,544 shares of PP&L Resources common stock were outstanding. During the second quarter, PP&L Resources established a revolving credit facility in the amount of $300 million. At the option of PP&L Resources, interest rates can be based on Eurodollar deposit rates or the prime rate. Any loans made under this credit arrangement would mature, and the facility will terminate, on May 29, 1997. PP&L Resources used borrowings under this revolving credit facility for the funding of a PMDC subsidiary's indirect acquisition of a 25 percent interest in SWEB. In July 1996, the PMDC subsidiary obtained an ownership interest in SWEB for $189 million through the purchase of a 25 percent interest in SIUKH, a holding company for Southern Investments UK, which is the sole shareholder of SWEB. Borrowings of $190 million were outstanding under this credit facility at September 30, 1996. PP&L Resources expects to replace this revolving credit borrowing by the end of May 1997 with about one-half common equity and one-half long-term debt. PP&L has a $250 million revolving credit arrangement with a group of banks. Any loans made under this credit arrangement would mature in September 1999 and, at the option of PP&L, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate. PP&L has additional credit arrangements with another group of banks. The banks have committed to lend PP&L up to $45 million under these credit arrangements, which mature in May 1997, at interest rates based upon Eurodollar deposit rates or the prime rate. These credit arrangements produce a total of $295 million of lines of credit to provide back-up for PP&L's commercial paper and short-term borrowings of certain subsidiaries. No borrowings were outstanding at September 30, 1996 under these credit arrangements. PP&L retired $30 million principal amount of First Mortgage Bonds, 5- 5/8% Series that matured on June 1, 1996. In March 1996, PP&L issued $116 million principal amount of unsecured promissory notes which mature in March 2001. At the option of PP&L, interest rates can be based on Eurodollar deposit rates or the prime rate. The proceeds from the issuance of these notes were used for the redemption in March 1996 of $115 million principal amount of First Mortgage Bonds ($40 million principal amount of the 8-1/8 Series due 1999 and $75 million principal amount of the 7-5/8% Series due 2002) pursuant to the maintenance and replacement fund provisions of PP&L's Mortgage. 5. Commitments and Contingent Liabilities - PP&L Resources/PP&L 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 1995 Form 10-K, except for the discussion below regarding environmental matters. For discussion pertaining to PP&L Resources' and PP&L's financing matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Financial Condition - Financing Programs." 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 September 30, 1996 was about $40 million. PP&L's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $8.9 billion under provisions of The Price Anderson Amendments Act of 1988. 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 of 1988, 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 identified in Title I of the Clean Air Act by reducing nitrogen oxide emissions by 40% through the use of low nitrogen oxide burners. Further nitrogen oxide reductions to 55% and 75% of pre-Clean Air Act levels are specified under the Northeast Ozone Transport Region's Memorandum of Understanding for 1999 and 2003, respectively. The Clean Air Act requires EPA to study the health effects of hazardous air emission and fine particulates from power plants and other sources. Adverse findings could cause the EPA to mandate further emission reductions from PP&L's power plants. Expenditures to meet the year 1999 requirements are included in the table of projected construction expenditures in the Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Financial Condition - PP&L's Capital Expenditure Requirements". PP&L currently estimates that additional capital expenditures and operating costs for environmental compliance under the Clean Air Act will be incurred beyond 2000 in amounts which are not now determinable but could be material. Water and Residual Waste DEP residual waste regulations require PP&L to permit existing ash basins at all of its coal-fired generating stations as disposal facilities. Ash basins that cannot be permitted are required to close by July 1997. 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. To address the DEP regulations, PP&L is moving forward with its plan to install dry fly ash handling systems at its power stations. 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 the Montour station. DEP may require similar toxic reduction studies at the Holtwood station, which may indicate the need for additional water treatment facilities at Holtwood as well. Capital expenditures through year 2000 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 Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Financial Condition - PP&L's Capital Expenditure Requirements". PP&L currently estimates that $11 million of additional capital expenditures may be required in the next four years and $68 million of additional capital expenditures could be required in year 2001 and beyond. 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 of PP&L's 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 September 30, 1996, PP&L had accrued $11 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. Subsidiary Issues In June 1995, the DEP ordered a PP&L subsidiary to abate seepage allegedly discharged from a mine formerly operated by that subsidiary. Based on new information suggesting a connection between the seeps and water from the mine, the subsidiary has withdrawn its appeal of the order. The Company does not expect the costs of complying with the order to be material. Other Environmental Matters In addition to the issues discussed above, PP&L may be required to modify, replace or cease operating certain of its 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 material capital expenditures, operating expenses and other costs in amounts which are not now determinable. For additional information relating to Environmental Matters, see Note 15 in PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended December 31, 1995.
PP&L Resources, Inc. and Pennsylvania Power & Light Company Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 nonutility operating transactions are included in "Other Income and Deductions - Net" on the Consolidated Statements 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, 1995. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary on page 28. Results of Operations The following explains material changes in principal items on the Consolidated Statements of Income comparing the three months and nine months ended September 30, 1996 to the comparable periods ended September 30, 1995. The Consolidated Statements of Income reflect the results of past operations and are not intended as any representation of the results of future operations. Future results of operations will necessarily be affected by various and diverse factors and developments. 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 - PP&L Resources Comparison of Earnings-September 30 Three Months Ended Nine Months Ended 1996 1995 1996 1995 Earnings per share - excluding weather variances and other adjustments referred to below $.53 $.39 $1.59 $1.34 Weather variances (.02) .05 .04 (.01) Workforce reductions (.02) (.07) (.03) (.07) One-time adjustments: Related to PUC Decision .21 .21 Recognition of deferred tax liability related to undeveloped coal reserves (.03) (.03) Recovery of purchased power costs .04 Earnings per share - reported $.49 $.55 $1.60 $1.48 Earnings per share, excluding weather variances and certain other adjustments referred to above, improved by $.14 for the three months ended September 30, 1996 and by $.25 for the first nine months of 1996, when compared with the same periods in 1995. Earnings improvement for these periods, excluding the effects of weather, was primarily due to sales growth in all major customer sectors, the impact of the PUC Decision and certain income tax adjustments recorded in the third quarter of 1996. A reduction in PP&L's contractual bulk power sales to JCP&L reduced earnings by 5 cents per share during the nine-month period ended September 30, 1996. Electric Energy Sales - PP&L The increases (decreases) in PP&L's electric energy sales were attributable to the following: Sept 30, 1996 vs. Sept 30, 1995 Three Months Nine Months Ended Ended (Millions of Kwh) Electric energy sales Residential (165) 457 Commercial (17) 245 Industrial 84 38 Other (including UGI) (17) 18 System sales (115) 758 Sales to other utilities 732 2,912 PJM energy sales (425) (683) Total 192 2,987 System, or service area, sales were 8.0 billion kwh for the three months ended September 30, 1996. This was a 1.4% decrease over the comparable period in 1995. The decrease was primarily due to milder than normal weather during 1996 as compared to 1995. If normal weather had been experienced in the third quarter of both 1995 and 1996, system sales would have been 3.3% higher. System sales were 25.4 billion kwh for the nine months ended September 30, 1996, which was a 3.1% increase over the first nine months of 1995. The primary cause of this increase was a colder winter in 1996 as compared to 1995. Under normal weather conditions in both periods, the growth in system sales would have been 2.0%. Assuming normal weather conditions for the rest of the year, system sales for 1996 are expected to total 33.7 billion kwh or 3.1% higher than 1995. Sales to other utilities for the three months ended September 30, 1996, increased 31.7% as compared to the same period in 1995. For the nine months ended September 30, 1996, the increase in sales to other utilities was 50.5%. These increases were primarily the result of PP&L's one-year contract to supply energy to PSE&G and increased sales to other utilities. Sales to PJM for the three months ended September 30, 1996 decreased by 46.5% over the comparable period in 1995. For the nine months ended September 30, 1996, PJM sales decreased 36.0%. These lower PJM sales are primarily the result of an increase in direct sales to other utilities such as the contract with PSE&G referenced above. Operating Revenues - PP&L The increase in total operating revenues was attributable to the following: September 30, 1996 vs. September 30, 1995 Three Months Nine Months Ended Ended (Millions of Dollars) Base rate revenues: Rate increase - PUC Decision $22 $ 71 Sales volume/mix 21 35 Weather (26) 18 Energy revenue 16 11 Sales to other utilities & PJM (2) 23 Other, net 2 (3) $33 $155 Operating revenues increased by $33 million, or 4.7%, during the three months ended September 30, 1996, when compared with the same period in 1995. Base rate revenues were enhanced by the PUC Decision, which increased PUC jurisdictional rates by about 3.8%, and by strong sales growth in the industrial and commercial sectors. These revenues were partially offset by unfavorable weather impacts. The summer months of 1995 were warmer than normal, but these same months in 1996 were cooler than normal. Energy revenues were also higher, reflecting the recovery of the higher costs of power purchases in the ECR. Power purchases were higher during the three months ended September 30, 1996 when compared with the comparable period in 1995, primarily due to forced outages at fossil and nuclear units, as well as the nuclear refueling outage. For the first nine months of 1996, revenues increased by $155 million, or 7.6%, from the same period in 1995. The growth in base rate revenues was also attributable to the impact of the PUC Decision and strong sales growth in the residential and commercial sectors. In addition, weather provided a favorable impact when comparing the first nine months of 1996 and 1995. This is a result of the extremely cold weather during the first quarter of 1996 compared to milder weather during the first quarter of 1995. The strong sales growth, due to real growth and weather, also resulted in higher energy revenues. Revenues from sales to other utilities were also higher during the nine months ended September 30, 1996 compared with the same period in 1995. The increase is attributable to the agreement to supply energy to PSE&G and higher sales to other utilities. These increases were partially offset by a loss of revenue due to the phasing out of the capacity sales agreement with JCP&L. Rate Matters - PP&L 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, 1995 regarding the PUC Decision. The OCA has appealed certain aspects of the PUC Decision to the Commonwealth Court. PP&L cannot predict the final outcome of this matter. In March 1996, the PUC approved PP&L's 1996-97 ECR, effective April 1, 1996. The ECR reflects a $42 million decrease in energy costs from the previous ECR. This is largely due to lower coal prices, only one nuclear refueling outage, the start of gas and oil dual fuel capability at Martins Creek Units 3 and 4, and the end of a settlement adjustment charge for replacement power costs. Power Purchases For the three months ended September 30, 1996 power purchases increased $18 million, or 27.3%, over the comparable period in 1995 primarily due to forced outages of fossil and nuclear units as well as a nuclear refueling outage. For the nine months ended September 30, 1996, power purchases increased $35 million, or 16.6%, over the comparable period in 1995. This was primarily due to higher energy sales coupled with forced outages at both coal and nuclear units. Other Operating Expenses - PP&L Other operating expenses, excluding PUC Decision related items, decreased $1 million for the three months ended September 30, 1996 and $7 million for the nine months ended September 30, 1996 as compared to the same periods in 1995. The decrease for both periods was primarily due to workforce reductions and ongoing initiatives to reduce costs. Income Taxes - PP&L Resources/PP&L For the three months ended September 30, 1996, income tax expense decreased by $48 million, or 48.3% from the comparable period in 1995. This is primarily due to a decrease in PP&L Resources' pre-tax book income of $57 million, and the use of research and experimental tax credits of $5 million. Also, during 1995 there were one-time tax increases for expensing deferred tax benefits of $11 million as a result of the PUC Decision and recognizing deferred tax liabilities of $4 million relative to undeveloped coal reserves. For the nine months ended September 30, 1996, income tax expense decreased by $25 million, or 11.3%, from the comparable period in 1995. This results primarily from research and experimental tax credits and the one-time adjustments in 1995 related to the PUC Decision and undeveloped coal reserves described above. Financial Condition Capital Expenditure Requirements - PP&L The schedule below shows PP&L's current capital expenditure projections for the years 1996-2000. PP&L's Capital Expenditure Requirements (a) -------------Projected------------- 1996 1997 1998 1999 2000 (Millions of Dollars) Construction expenditures Generating facilities $ 92 $ 65 $ 81 $ 53 $ 76 Transmission and distribution facilities 126 120 126 123 147 Environmental 13 16 21 34 3 Other 50 57 44 20 17 281 258 272 230 243 Nuclear fuel owned and leased 96 68 71 67 71 Other leased property 20 24 22 22 22 Total $397 $350 $365 $319 $336 (a) Construction expenditures include AFUDC which is expected to be less than $12 million in each of the years 1996-2000. Capital expenditure plans are revised from time to time to reflect changes in conditions. PP&L's current capital expenditures projections for the years 1996-2000 total about $1.8 billion which is an $85 million increase over previously budgeted amounts for the same period. The change is due to a $107 million increase in projected "other leased property" and "nuclear fuel owned and leased" expenditures partially offset by a $22 million reduction in construction expenditures. Reductions in construction expenditures for transmission and distribution facilities and environmental expenditures are partially offset by increases in other expenditures. Financing Programs - PP&L Resources/PP&L From January through October 1996, PP&L Resources obtained $68 million from sales of common equity through the DRIP. During the second quarter, PP&L Resources obtained a commitment from certain banks to provide loans under an unsecured revolving credit facility up to an aggregate $300 million. See Financial Note 4 for additional information on the use of this revolving credit facility. PP&L retired $30 million principal amount of First Mortgage Bonds, 5- 5/8% Series that matured on June 1, 1996. In March 1996, PP&L issued $116 million principal amount of unsecured promissory notes which mature in March 2001. At the option of PP&L, interest rates can be based on Eurodollar deposit rates or the prime rate. The proceeds from the issuance of the notes were used for the redemption in March 1996 of $115 million principal amount of First Mortgage Bonds ($40 million principal amount of the 8-1/8 Series due 1999 and $75 million principal amount of the 7-5/8% Series due 2002) pursuant to the maintenance and replacement fund provisions of PP&L's Mortgage. PP&L's projected internally generated funds would be sufficient to permit PP&L to retire $775 million of its long-term debt during 1996-2000, which would reduce interest charges by approximately $60 million by 2000. 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 power projects by PMDC. Financial Indicators - PP&L Resources The ratio of pre-tax income to interest charges was 3.6 and 3.5, respectively, for the nine months ended September 30, 1996 and 1995. The annual per share dividend rate on common stock remained unchanged at $1.67 per share. The ratio of the market price to book value of common stock was 131% at September 30, 1996 compared with 145% at September 30, 1995. Commitments and Contingent Liabilities - PP&L Resources/PP&L 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 1995 Form 10-K, except for the discussions in Financial Note 5 - -- "Commitments and Contingent Liabilities" regarding environmental matters. 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 investments, which are those costs incurred by a utility because of federal or state regulatory requirements and, also, any portion of prudent investments made in generating facilities which would not be recoverable in a competitive market. Pennsylvania Activities In April 1996, legislation was introduced in both the Pennsylvania House and Senate aimed at ensuring that all customers enjoy the benefits of increased competition in the electricity generation market. In general, the bills would open up the generation portion of the electric utility business to full competition while maintaining FERC regulation of the transmission portion of the business and PUC regulation of distribution. At the request of the Governor, the PUC recently held a series of meetings with major stakeholders to attempt to reach consensus on many of the issues in the industry restructuring legislation. These issues include (i) stranded cost recovery and the mechanism for such recovery; (ii) universal service and the obligation to serve; (iii) rate caps or freezes; (iv) market power remediation; and (v) the role of cooperatives and municipalities that own electrical distribution systems. In addition, legislative provisions have been developed which should ensure that state tax revenues received by the Commonwealth will not be reduced as a result of restructuring the electric utility industry. With respect to the mechanism for stranded cost recovery, the legislation may provide for the issuance of "transition bonds" to pay the stranded costs. This procedure has been approved in California and is currently being considered in New York. The major elements include (i) the sale or transfer by the utility of the right to recover a portion of its stranded costs to a financing entity -- for a lump-sum payment of cash -- that could be used to retire the utility's debt and equity; (ii) the issuance by the financing entity of "transition bonds"; (iii) the collection by the utility of "transition charges" on customers' bills; and (iv) the transfer of these customer payments to the financing entity to pay the principal and interest and other related costs of issuing the transition bonds. Customer savings may be achieved because the interest rate on the transition bonds should be lower than the utility's pre-tax overall rate of return used to calculate the transition charges. The PUC would issue an order approving the collection of the transition charges which by law could not be subsequently reduced. This commitment by the state would protect the cash flow stream that would be used to repay the transition bonds. Restructuring legislation could be enacted in Pennsylvania this year. PP&L cannot predict the ultimate content of this legislation or its effect on the Company. In addition, in July 1996 the PUC issued to the Governor and General Assembly the report of its investigation on competition in Pennsylvania's electric utility industry. Major elements of the PUC report include: (i) a five-year transition period (which could be shorter or longer depending on the progress of the transition), during which time utilities would adopt specific plans to achieve retail competition; (ii) a request that each utility submit to the PUC by April 1997 a tentative restructuring proposal describing these specific plans; (iii) a four-year phase-in period for customer choice (2001 to 2004), after which time all customers would have retail access; (iv) an opportunity for utilities to recover their net, unmitigated stranded costs; (v) a recommendation that utilities file voluntary pilot programs for retail access, pending legislative action to require such programs; and (vi) a schedule of milestone PUC reviews on the progress made toward full retail competition. In response to the PUC Report, the Company on October 1, 1996 became the first Pennsylvania utility to file for PUC approval of its retail pilot program. Under this program, approximately 54,000 PP&L residential, commercial, and industrial customers -- representing approximately 5% of PP&L's average peak load -- will have an opportunity to purchase energy from alternative suppliers. The Company is requesting that the program become effective on April 1, 1997 and remain in effect for 21 months through December 31, 1998, to coincide with PP&L's proposed commencement date of January 1, 1999 for full retail competition. Under the pilot program, PP&L initially will provide capacity, all back-up services and customer service. Other utilities may participate in PP&L's program as suppliers if they offer this same opportunity for PP&L to participate in their programs. PP&L currently is preparing to respond to the other requirements of the PUC report. 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 and recovery of stranded costs (FERC Orders 888 and 889). These rules, which were effective on July 9, 1996, require all electric utilities to file open access transmission tariffs available to all wholesale sellers and buyers of electricity. The tariffs must offer point-to-point and network services, as well as ancillary services. A utility must offer these services to all eligible wholesale customers on a basis comparable to the services the utility provides to itself. A utility must take service under its open access transmission tariff for its own wholesale sales and purchases. The rules do not abrogate existing transmission agreements. The rules also provide that utilities are entitled to recover from their wholesale 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 contracts signed before this 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. Under the new rules, 16 small utilities which have contracts with PP&L signed before July 11, 1994, requested and were provided with PP&L's current estimate of its stranded costs aplicable to these customers after these contracts terminate in 1999. Based upon a formula set forth in FERC Order 888 and applicable only to PP&L's wholesale customers, and based upon data unique to the contracts between PP&L and these customers, PP&L estimated that the stranded costs associated with service to these wholesale customers are approximately $95 million. As a result of a protest by these parties against such recovery, the FERC has ordered hearings regarding PP&L's right to recover these stranded costs. The rules also require that plans for restructuring of transactions within power pools and bilateral coordination agreements be filed by December 31, 1996 and implemented by March 1, 1997. In addition, utilities must separate their transmission and power marketing functions, and they must implement an electronic bulletin board for transmission capacity information by January 3, 1997. 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. Several parties, including the small utilities, moved to intervene and protested the new rates. PP&L currently expects these matters to be set for hearing by the FERC. In addition, PP&L has made the required informational filing which showed unbundled generation and transmission components of its billing to existing wholesale customers. The FERC is currently reviewing this information. On a related matter, on July 24, 1996, all of the PJM companies, except PECO, submitted a comprehensive filing for FERC approval of changes to the PJM Power Pool to accommodate greater competition and broader participation, with proposed implementation of the new structure by the end of 1996. The filing would (i) establish pool-wide transmission service tariffs to provide comparable, open-access service for all wholesale transactions throughout PJM; (ii) establish a price-based bidding system, with the resulting regional energy market open to all wholesale buyers and sellers of power; (iii) create a not-for-profit corporate entity in the form of an ISO responsible for impartial daily management and administration of the energy market and the transmission system; and (iv) develop an enhanced pool-wide planning function to be administered by the ISO. The sponsoring PJM Companies propose to enter into three pool participation agreements to define the relationships among the signatories and the ISO: (i) a Reserve Sharing Agreement among all entities that serve end-use customers within the new power pool; (ii) a Transmission Owners Agreement among entities that own bulk power transmission facilities; and (iii) a Market Operations Agreement to establish a spot energy market open to all wholesale entities that wish to participate in the new pool. In August 1996, PECO filed a separate PJM restructuring proposal with the FERC, which differs significantly from the other companies' filing. 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 September 30, 1996, PMDC had either investments or commitments in the amount of $258 million in distribution, transmission and generation facilities throughout the world, including the United Kingdom, Bolivia, Peru, Argentina, Spain and Portugal. The principal investment to date is a 25 percent interest in SWEB, a British regional electric utility company, for approximately $189 million. See Financial Note 4 for additional information on PP&L Resources' financing of SWEB.
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. In April 1991, the U.S. Department of Labor through its Mine Safety and Health Administration (MSHA) issued citations to one of PP&L's coal- mining subsidiaries for alleged coal-dust sample tampering at one of the subsidiary's mines. The MSHA at the same time issued similar citations to more than 500 other coal-mine operators. Based on a review of its dust sampling procedures, the subsidiary is contesting all of the citations. It is belived at this time, based on the information available, that the MSHA allegations are without merit. Citations were also issued against the independent operator of another subsidiary mine, who is also contesting the citations issued with respect to that mine. The Administrative Law Judge (Judge) assigned to the proceedings ordered that one case be tried against a single mine operator unrelated to PP&L to determine whether the MSHA could prove its general allegations regarding sample tampering. In April 1994, the Judge ruled in favor of the mine operator and vacated the 75 citations against it. The MSHA appealed the Judge's decision to the Mine Safety and Health Review Commission. In November 1995, the Commission affirmed the Judge's rulings in favor of the operator. Although it initially appeared that the Secretary of Labor intended to vacate all the citations in this matter, that office instead has decided to pursue an appeal of the Commission's decision in the United States Court of Appeals for the District of Columbia Circuit. PP&L cannot predict the outcome of these proceedings. On July 25, 1994, Mon Valley Steel Company, Inc. (Mon Valley) filed suit in the Court of Common Pleas of Fayette County, Pennsylvania, against PP&L and two of its subsidiaries, claiming that PP&L and those subsidiaries made fraudulent misrepresentations during negotiations for the 1992 sale to Mon Valley of Tunnelton Mining Company (Tunnelton). Tunnelton was a coal- mining operation formerly owned by PP&L's subsidiary, Pennsylvania Mines Corporation. Specifically, Mon Valley alleges that PP&L and those subsidiaries misrepresented Tunnelton's capability to produce coal, as well as the amount of funding Tunnelton would receive for mine closing costs. Mon Valley is claiming about $6 million to cover mine closing costs as well as punitive damages in an unspecified amount. In July 1994, PP&L and those subsidiaries filed a legal action in the Court of Common Pleas of Allegheny County, Pennsylvania, requesting a judicial determination that they had not breached any of their contractual obligations to Mon Valley. While these matters were pending, Mon Valley was forced into involuntary bankruptcy by its creditors and, accordingly, in August 1996 PP&L removed the Fayette County action to Federal Bankruptcy Court. The Allegheny County action by PP&L has been stayed pending the Bankruptcy Court's determination. PP&L cannot predict the outcome of these proceedings. As a result of its ongoing cost reduction efforts, PP&L expects further reductions in the number of full-time employees. In this regard, PP&L and Local Union No. 1600 -- which represents approximately 4,000 PP&L employees -- have agreed to submit to arbitration under their collective bargaining agreement the issue of whether PP&L can eliminate bargaining unit positions while utilizing outside contractors for certain functions. In a series of rulings, the arbitrator has held that PP&L may not layoff employees if they would have work but for the use of contractors. As a result, PP&L is proceeding to offer certain contractor jobs to bargaining unit employees but expects to layoff a number of employees at the end of this process. Local 1600 continues to challenge the number of contractor jobs made available, and further hearings will take place in early 1997. PP&L cannot predict the outcome of these hearings or the effect they may have on the continuing workforce reduction effort. In June 1995, the DEP ordered a PP&L subsidiary to abate seepage allegedly discharged from a mine formerly operated by that subsidiary. Based on new information suggesting a connection between the seeps and water from the mine, the subsidiary has withdrawn its appeal of the order. The Company does not expect that the costs of complying with the order will be material. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 - $300,000,000 Revolving Credit Agreement among PP&L Resources, Inc., Chemical Bank and Citibank, N.A., dated May 30, 1996. 27 - Financial Data Schedule (b) Reports on Form 8-K None.
Glossary of Terms and Abbreviations 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. DEP - Pennsylvania Department of Environmental Protection DRIP (Dividend Reinvestment Plan) - program available to shareowners of Resources' common stock and PP&L preferred stock to reinvest dividends in Resources' common stock instead of receiving dividend checks. ECR (Energy Cost Rate) - a tariff applied to PUC-jurisdictional customers to recover fuel and other energy costs. Differences between actual and estimated amounts are collected or refunded to customers. EPA - Environmental Protection Agency 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. ISO - Independent System Operator JCP&L - Jersey Central Power & Light Company NPDES - National Pollutant Discharge Elimination System OCA - Pennsylvania Office of Consumer Advocate 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 (the former Philadelphia Electric Company) 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) - 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. PP&L's Mortgage - Pennsylvania Power & Light Company's Mortgage and Deed of Trust dated October 1, 1945 PSE&G - Public Service Electric & Gas Company 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 SIUKH - Southern Investments UK Holdings Limited 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. Superfund - Federal and state legislation that addresses remediation of contaminated sites. SWEB - South Western Electricity plc, a British regional electric utility company. UGI - UGI Corporation
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: November 13, 1996 /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)