-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NxkTGnm3R1DTlr4tjSRvb9+8MDn6Bbu6jciCztqM3Bta3vN+HkKCRQIQsU1nP+Ej Ds9dobOWLlVsBGl57y+KBg== 0000317187-97-000036.txt : 19971111 0000317187-97-000036.hdr.sgml : 19971111 ACCESSION NUMBER: 0000317187-97-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PP&L INC CENTRAL INDEX KEY: 0000317187 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 230959590 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00905 FILM NUMBER: 97711774 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 2157745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101-1179 FORMER COMPANY: FORMER CONFORMED NAME: PP & L INC DATE OF NAME CHANGE: 19970912 10-Q 1 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, 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 PP&L, Inc. 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, Inc. 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, 165,873,877 shares outstanding at October 31, 1997 PP&L, Inc. Common stock, no par value, 157,300,382, shares outstanding and all held by PP&L Resources, Inc. at October 31, 1997 PP&L RESOURCES, INC. AND PP&L, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements PP&L Resources, Inc. Consolidated Statement of Income Consolidated Statement of Cash Flows Consolidated Balance Sheet PP&L, Inc. Consolidated Statement of Income Consolidated Statement of Cash Flows Consolidated Balance Sheet Notes to Financial Statements PP&L Resources, Inc. and PP&L, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PP&L Resources, Inc. and PP&L, Inc. PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K GLOSSARY OF TERMS AND ABBREVIATIONS SIGNATURES 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 September 30, 1997 and December 31, 1996, and the Consolidated Statement of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 1997 and 1996. PP&L Resources is the parent holding company of PP&L, PP&L Global, and PP&L 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)" in PP&L Resources' Consolidated Statement of Income. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars, except per share data)
Three Months Nine Months Ended September 30,Ended September 30, 1997 1996 1997 1996 Operating Revenues .............................. $778 $715 $2,250 $2,173 Operating Expenses Operation Fuel........................................ 134 124 350 349 Power purchases............................. 138 84 358 249 Other....................................... 125 138 363 387 Maintenance.................................... 46 40 130 136 Depreciation (including amortized depreciation) 94 91 279 272 Income taxes................................... 58 52 192 193 Taxes, other than income....................... 50 50 156 156 645 579 1,828 1,742 Operating Income ................................. 133 136 422 431 Other Income and (Deductions) Other - net.................................... 3 6 15 10 Income taxes................................... 5 6 Windfall profits tax - PP&L Global............. (40) (40) (32) 6 (19) 10 Income Before Interest Charges and Dividends on Preferred Stock................................ 101 142 403 441 Interest Charges Long-term debt................................. 48 52 147 155 Short-term debt and other...................... 5 4 16 9 53 56 163 164 Preferred Stock Dividend Requirements............. 6 7 17 21 Net Income........................................ $42 $79 $223 $256 Earnings Per Share of Common Stock (a)............ $0.25 $0.49 $1.36 $1.60 Average Number of Shares Outstanding (thousands)..164,961 161,360 164,110 160,650 Dividends Declared Per Share of Common Stock......$0.4175 $0.4175 $1.2525 $1.2525 (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Millions of Dollars)
Nine Months Ended September 30, 1997 1996 Net Cash Provided by Operating Activities.................... $579 $632 Cash Flows From Investing Activities Property, plant and equipment expenditures.................. (200) (250) Purchases of available-for-sale securities........................... (61) (405) Sales and maturities of available-for-sale securities................ 100 392 Investment in electric energy projects .............................. (149) (203) Purchases and sales of other financial investments - net............. 76 Other investing activities - net............................ 23 45 Net cash used in investing activities.......................... (211) (421) Cash Flows From Financing Activities Issuance of long-term debt.................................. 10 116 Issuance of common stock............................................. 53 53 Issuance of Company-obligated mandatorily redeemable securities of subsidiary holding solely parent debentures ......... 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....................... (50) (63) Common and preferred dividends paid.................................. (223) (221) Net increase in short-term debt...................................... 139 130 Other financing activities - net .................................... (20) (1) Net cash used in financing activities.......................... (420) (131) Net Increase (Decrease) In Cash and Cash Equivalents ........ (52) 80 Cash and Cash Equivalents at Beginning of Period ..................... 101 20 Cash and Cash Equivalents at End of Period ........................... $49 $100 Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest (net of amount capitalized)................................ $152 $156 Income taxes........................................................ $194 $224 See accompanying Notes to Financial Statements.
PP&L RESOURCES,INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30,December 31, 1997 1996 (Unaudited) (Audited) ASSETS Property, Plant and Equipment Electric utility plant in service - at original cost. $9,949 $9,824 Accumulated depreciation ................................... (3,502) (3,337) 6,447 6,487 Construction work in progress - at cost....................... 163 172 Nuclear fuel owned and leased - net of amortization .......... 146 170 Other leased property - net of amortization ............................... 76 Electric utility plant - net................................ 6,756 6,905 Other property - (net of depreciation, amortization and depletion 1997, $57; 1996, $54)......................... 54 55 6,810 6,960 Investments Investment in and advances to electric energy projects - at equity .............................. 357 224 Affiliated companies - at equity ............................. 17 17 Nuclear plant decommissioning trust fund ..................... 156 128 Financial investments......................................... 49 133 Other - at cost or less ...................................... 11 18 590 520 Current Assets Cash and cash equivalents ........................... 49 101 Current financial investments ................................ 32 73 Accounts receivable (less reserve: 1997, $17; 1996, $25) Customers ................................................ 182 196 Other..................................................... 29 19 Unbilled revenues............................................. 72 85 Fuel, materials and supplies - at average cost................ 200 201 Deferred income taxes ........................................ 24 21 Other......................................................... 69 53 657 749 Regulatory Assets and Other Noncurrent Assets .......... 1,428 1,407 $9,485 $9,636 See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1997 1996 (Unaudited) (Audited) LIABILITIES Capitalization Common equity Common stock .......................................... $2 $2 Capital in excess of par value ....................... 1,646 1,596 Earnings reinvested.................................... 1,160 1,143 Capital stock expense and other ....................... (18) 4 2,790 2,745 Preferred stock With sinking fund requirements ........................ 47 295 Without sinking fund requirements ..................... 50 171 Company-obligated mandatorily redeemable securities of subsidiary holding solely parent debentures ........ 250 Long-term debt ......................................... 2,482 2,802 5,619 6,013 Current Liabilities Commercial paper ....................................... 93 Bank loans ............................................. 190 144 Long-term debt due within one year ...................... 150 30 Capital lease obligations due within one year ........... 58 81 Accounts payable ........................................ 102 133 Taxes accrued ......................................................... 19 Interest accrued ........................................ 63 61 Dividends payable ....................................... 76 75 Other ................................................... 114 78 846 621 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits ....................... 202 209 Deferred income taxes ................................... 2,035 2,052 Capital lease obligations ............................... 94 166 Other ................................................... 689 575 3,020 3,002 $9,485 $9,636 See accompanying Notes to Financial Statements.
PP&L, INC. 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 September 30, 1997 and December 31, 1996, and the Consolidated Statement of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 1997 and 1996. All nonutility operating transactions are included in "Other Income and (Deductions)" in PP&L's Consolidated Statement of Income. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars)
Three Months Nine Months Ended September 30,Ended September 30, 1997 1996 1997 1996 Operating Revenues .............................. $778 $715 $2,250 $2,173 Operating Expenses Operation Fuel........................................ 134 124 350 349 Power purchases............................. 138 84 358 249 Other....................................... 125 138 363 387 Maintenance.................................... 46 40 130 136 Depreciation (including amortized depreciation) 94 91 279 272 Income taxes................................... 58 52 192 193 Taxes, other than income....................... 50 50 156 156 645 579 1,828 1,742 Operating Income ................................. 133 136 422 431 Other Income and (Deductions)..................... (1) 3 6 9 Income Before Interest Charges.................... 132 139 428 440 Interest Charges Long-term debt................................. 48 52 147 155 Short-term debt and other...................... 3 1 10 5 51 53 157 160 Net Income........................................ 81 86 271 280 Dividends on Preferred Stock...................... 12 7 28 21 Earnings Available to PP&L Resources ............. $69 $79 $243 $259 See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Millions of Dollars)
Nine Months Ended September 30, 1997 1996 Net Cash Provided by Operating Activities..................... $576 $634 Cash Flows From Investing Activities Property, plant and equipment expenditures.................. (200) (250) Purchases of available-for-sale securities ................................... (61) (84) Sales and maturities of available-for-sale securities ........................ 78 87 Purchases and sales of other financial investments - net...................... 76 Loan to parent.............................................. (375) Other investing activities - net ........................... 22 45 Net cash used in investing activities................................... (460) (202) Cash Flows From Financing Activities Issuance of long-term debt.................................. 10 116 Issuance of Company-obligated mandatorily redeemable securities of subsidiary holding solely parent debentures .................. 250 Retirement of long-term debt................................ (210) (145) Payments on capital lease obligations......................................... (50) (63) Common and preferred dividends paid........................................... (264) (221) Net increase (decrease) in short-term debt.................................... 84 (59) Other financing activities - net ............................................. (9) 21 Net cash provided by (used in) financing activities..................... (189) (351) Net Increase (Decrease) in Cash and Cash Equivalents.......... (73) 81 Cash and Cash Equivalents at Beginning of Period................................ 95 15 Cash and Cash Equivalents at End of Period...................................... $22 $96 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Interest (net of amount capitalized)........................................ $145 $156 Income taxes................................................................ $197 $226 See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1997 1996 (Unaudited) (Audited) ASSETS Property, Plant and Equipment Electric utility plant in service - at original cost.. $9,949 $9,824 Accumulated depreciation ..................................... (3,502) (3,337) 6,447 6,487 Construction work in progress - at cost ........................ 163 172 Nuclear fuel owned and leased - net of amortization ............ 146 170 Other leased property - net of amortization ................................... 76 Electric utility plant - net .................................. 6,756 6,905 Other property - (net of depreciation, amortization and depletion 1997, $57; 1996, $54) .......................... 54 55 6,810 6,960 Investments Affiliated companies - at equity ..................... 17 17 Nuclear plant decommissioning trust fund ....................... 156 128 Loan to parent.................................................. 375 Financial investments ................................ 49 133 Other - at cost or less ........................................ 11 10 608 288 Current Assets Cash and cash equivalents ............................ 22 95 Current financial investments .................................. 32 51 Accounts receivable (less reserve: 1997, $17; 1996, $25) Customers .................................................... 182 196 Other ........................................................ 34 14 Unbilled revenues............................................... 72 85 Fuel, materials and supplies - at average cost ................. 200 201 Deferred income taxes .......................................... 25 21 Other .......................................................... 68 53 635 716 Regulatory Assets and Other Noncurrent Assets .......... 1,428 1,407 $9,481 $9,371 See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1997 1996 (Unaudited) (Audited) 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 securities of subsidiary holding solely parent debentures ........ 250 Long-term debt .......................................... 2,482 2,802 5,808 5,885 Current Liabilities Commercial paper ........................................ 93 Bank loans .............................................. 10 Long-term debt due within one year ...................... 150 30 Capital lease obligations due within one year ........... 58 81 Accounts payable ........................................ 102 132 Taxes accrued ........................................... 1 21 Interest accrued ........................................ 62 60 Dividends payable ....................................... 82 75 Other ................................................... 113 78 661 487 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits ......................... 202 209 Deferred income taxes ................................... 2,028 2,050 Capital lease obligations .............................. 94 166 Other ................................................... 688 574 3,012 2,999 Commitments and Contingent Liabilities .................... $9,481 $9,371 See accompanying Notes to Financial Statements.
PP&L Resources, Inc. and PP&L, Inc. 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 prior period financial statements have been reclassified to conform to the presentation in the September 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. 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 $4.5 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, costs of power purchases, disposal costs 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 as presented in the evidentiary record of the proceeding: Amount Category of Stranded Cost (Millions of Dollars) Nuclear Generation(a) $2,825 Fossil Generation(a) 670 NUG Contracts 651 Regulatory Assets 354 $4,500 (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. Numerous parties have intervened in PP&L's 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 $1.1 billion. 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 other party in the proceeding. Evidentiary hearings in this matter were held in late-August. On September 12, 1997, the PUC extended the schedule for this proceeding by 30 days to allow time for the parties to engage in settlement discussions. On October 23, 1997, the PUC further extended the procedural schedule by 45 days for continued settlement discussions. If the parties reach a settlement of this proceeding, the settlement agreement will be filed with the PUC; the PUC could accept, reject or modify that settlement in its final order. If no settlement is reached, then the proceeding will continue pursuant to the established schedule under which the PUC's final order currently is due by March 26. PP&L cannot predict the outcome of the ongoing settlement discussions or the ultimate 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 PUC's final order in the restructuring proceeding -- either on a proposed settlement by the parties or as a result of a fully-litigated proceeding -- including the amount of stranded cost recovery approved by the PUC and the PUC's disposition of other issues raised; 2. The effect of the rate cap imposed under the provisions of the Customer Choice Act; 3. The actual market price of electricity over the transition period; 4. Future sales levels; and 5. 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 services to customers who do not choose an alternative supplier. Applying the CTC proposed in its restructuring plan (which is restricted by the rate cap) through the year 2005, it is estimated that PP&L would collect approximately $4 billion of its stranded costs. The remaining $500 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 do not actually occur, PP&L could experience a lower recovery of stranded costs. If the PUC's final order in the restructuring proceeding were to permit 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's final order -- either on a proposed settlement by the parties or as a result of a fully-litigated proceeding -- may result in changes to components or assumptions in PP&L's restructuring plan that could have an adverse effect on the amount of the CTC, the amount of stranded costs that are recoverable through the CTC or the overall amount of revenues to be collected from customers. 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 with respect to the restructuring proceeding. Based on the substantial amounts involved in the restructuring proceeding, should PP&L incur such a write-off or reduction in earnings, either one could be material in amount. Accordingly, PP&L is unable to predict the ultimate effect of the Customer Choice Act or the PUC's final order in the restructuring proceeding on its financial position, results of operation, future rate levels 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. Certain parties have brought actions in Pennsylvania Commonwealth Court challenging the constitutionality of the Customer Choice Act. PP&L has intervened in these proceedings 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 FASB's Emerging Issues Task Force (EITF) has addressed the appropriateness of the continued application of SFAS 71 by utilities in states that have enacted restructuring legislation similar to the Customer Choice Act. The EITF has 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 expected to be no later than early-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 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. 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 with respect to SFAS 106. The Supreme Court has denied the OCA's request for review, and the Commonwealth Court's decision is now final. 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 decision and remanded that issue to the PUC for recalculation of the allowance. 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 began sales of installed capacity credits of up to 225,000 kW through December 1998 to GPU and Atlantic Electric. Prices for these sales reflect market conditions. 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 pending. 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. In October 1997, PP&L made an application to the United States Department of Energy for an export license to sell capacity and/or energy to electric utilities in Canada. If this application is granted, PP&L will be able to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities. 6. Financial Instruments Financial investments decreased by $125 million from December 31, 1996 to September 30, 1997, largely due to the liquidation of long-term investments to make funds more readily available for the tender offer to repurchase PP&L preferred stock by PP&L Resources. 7. Credit Arrangements and Financing Activity From January through October 1997, PP&L Resources issued $68 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 were outstanding at September 30, 1997. In March and April 1997, PP&L Resources acquired 79.10% ($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 of subsidiary holding solely parent debentures" (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 at $25 per share, for proceeds of $100 million; and six million shares of 8.10% preferred securities issued to the public in June 1997 at $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 Capital Funding is a wholly-owned subsidiary of PP&L Resources which was formed in September 1997 to provide debt financing for PP&L Resources and its subsidiaries. The payment of principal, interest and premium, if any, with respect to debt securities issued by PP&L Capital Funding will be guaranteed by PP&L Resources. PP&L Capital Funding has registered $400 million of debt securities with the SEC. It is expected that these debt securities will be issued from time to time as medium-term notes to provide long-term debt financing for PP&L Resources and its unregulated subsidiaries. As more fully described in PP&L Resources' and PP&L's Annual Reports to the SEC on Form 10-K for the year ended December 31, 1996, PP&L has a $250 million revolving credit agreement with a group of banks (the PP&L Credit Agreement). Any loans made under this credit agreement will mature, and the facility will terminate, in September 1999. At September 30, 1997, there were no borrowings outstanding under the PP&L Credit Agreement. Additional credit arrangements under which another group of banks was committed to lend PP&L up to $45 million were terminated by PP&L effective November 7, 1997. Also as described in the 1996 Form 10-K Report for PP&L Resources and PP&L, PP&L Resources has a $300 million revolving credit agreement with a group of banks (the PP&L Resources Credit Agreement). Due to a six-month extension of this credit agreement in May 1997, loans made under this credit agreement will mature, and the facility will terminate at the end of November 1997. At September 30, 1997, there were $190 million of borrowings outstanding under the PP&L Resources Credit Agreement. PP&L Capital Funding and PP&L currently are negotiating a new revolving credit facility with a group of banks under which a total of $450 million of loans will be available to PP&L Capital Funding and PP&L. This revolving credit facility will replace the PP&L Resources Credit Agreement and the PP&L Credit Agreement and will be evidenced by two new revolving credit agreements--a $150 million 364-day Revolving Credit Agreement and a $300 million five-year Revolving Credit Agreement. At the option of PP&L Capital Funding and PP&L, interest rates for borrowings under these agreements will be based upon Eurodollar deposit rates or the prime rate. The respective obligations of PP&L Capital Funding and PP&L under these agreements will be several and not joint. 8. Windfall Profits Tax - PP&L Global In July 1997, the U.K. enacted a windfall profits tax on privatized utilities. The tax is payable in two equal installments; the first installment is due in December 1997 and the second one is due in December 1998. SWEB's windfall profits tax was approximately 97 million pounds sterling, or about $159 million. Based on PP&L Global's 25% ownership interest in SWEB, PP&L Resources incurred a one-time charge against earnings of $40 million, or 24 cents per share, in the third quarter of 1997. Subsequent to September 30, 1997, SWEB revised its estimate of the windfall profits tax from 97 million pounds sterling to approximately 90 million pounds sterling, or about $148 million. The reduction in PP&L Resources' share of the tax, which is not material, is expected to be recorded during the fourth quarter. 9. 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 acquisition, 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. 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 acquisition of PFG is subject to several conditions, including the receipt of required approvals by the PUC and the SEC. The Maryland Public Service Commission has determined not to institute proceedings on the matter. The U.S. Department of Justice and the Federal Trade Commission have granted early termination of the required waiting period for the acquisition under the Hart-Scott-Rodino Premerger Notification Act. On October 1, 1997, PFG's shareholders approved the acquisition at a special shareholders meeting. The acquisition does not require the approval of PP&L Resources' shareholders. The acquisition is expected to be completed by mid-1998. In the third quarter of 1997, PP&L Resources recorded one-time transaction costs associated with the acquisition of PFG of $5.7 million, which reduced earnings by about three cents per share. 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 September 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 1990 levels for 1999 and 2003, respectively, are specified under the Northeast Ozone Transport Region's Memorandum of Understanding. The PA DEP has finalized 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, the EPA has finalized new national standards for ambient levels of ground-level ozone and fine particulates. Based in part on the new ozone standard, the EPA has proposed NOx emission limits for 22 states including Pennsylvania, which in effect requires approximately an 80% reduction from the 1990 level in Pennsylvania in the 2005-2012 timeframe. The new particulates standard may require yet further reductions in both NOx and SO2 and may extend the reductions from seasonal to year round. Expenditures to meet the 1999 NOx reduction requirements 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 proposed renewal of the Montour station's NPDES permit contains stringent limits for iron and chlorine discharges. Depending on the results of a toxic reduction study to be conducted, additional water treatment facilities or operational changes 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 which 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 September 30, 1997, PP&L had accrued $8.9 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 PP&L Global has guaranteed a subsidiary's pro rata share of the outstanding portion of certain debt issuances of an affiliate. At September 30, 1997, $13 million of such loans were guaranteed by PP&L Global. PP&L Global's guarantee is expected to increase to $18 million during 1998, as the affiliate draws down the balance of its debt facility. In addition, PP&L Spectrum has a $1 million line of credit, which is guaranteed by PP&L Resources. Employee Relations As of September 30, 1997, PP&L had a total of 6,350 full-time employees. Approximately 65 percent of these employees are represented by the IBEW. The labor agreement with the IBEW expires in 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 material impact on PP&L Resources' or PP&L's financial statements. PP&L Resources, Inc. and PP&L, Inc. 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 fluctuations, unless specifically noted, are primarily due to activities of PP&L. All nonutility operating transactions are included in "Other Income and (Deductions)" 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. Forward-looking Information 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 developments, especially the PUC's final order on 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. Results of Operations The following discussion explains material changes in principal items on the Consolidated Statement of Income comparing the three months and nine months ended September 30, 1997, to the comparable periods ended September 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 - September 30 Three Months Ended Nine Months Ended 1997 1996 1997 1996 Earnings per share - excluding weather variances and one-time adjustments $0.48 $0.51 $1.63 $1.56 Weather variances on billed sales (0.02) (0.02) (0.06) 0.04 One-time adjustments Windfall Profits Tax (0.24) - (0.24) - UK Income Tax Rate Reduction 0.06 - 0.06 - Penn Fuel Gas, Inc. acquisition costs (0.03) - (0.03) - Earnings per share - reported $0.25 $0.49 $1.36 $1.60 Earnings per share, excluding weather variances and one-time adjustments, were $.03 lower for the three months ended September 30, 1997, and $.07 higher for the first nine months of 1997, when compared with the same periods in 1996. Earnings changes for these periods, excluding weather variances and one-time adjustments, were primarily the net effect of the following: Sept. 30, 1997 vs. Sept. 30, 1996 Three Months Nine Months Ended Ended (per share) o Higher base rate revenues, due to unbilled revenues and moderate growth in weather- normalized sales; $ - $0.04 o Higher other operating revenues, primarily due to increased sales of reservation of electrical output to other utilities; 0.05 0.10 o Higher pre-tax earnings from PP&L Global; 0.01 0.06 o Net reduction in revenues due to the phase-down of the contract with JCP&L; (0.01) (0.06) o Change in regulatory treatment of energy costs; (0.04) (0.04) o Lower other income and deductions primarily due to the sale of investment securities in 1996, and lower earnings from CEP due to the liquidation of its investments; and (0.02) (0.04) o Other (0.02) 0.01 Earnings Change $(0.03) $0.07 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 and the regulatory and business developments related thereto could have a major impact on the future financial performance of PP&L. See "PUC Restructuring Proceeding" for additional information. Electric Energy Sales The change in PP&L's electric energy sales was attributable to the following: Sept. 30, 1997 vs. Sept. 30, 1996 Three Months Nine Months Ended Ended (Millions of kWh) Service Area Sales: Residential 41 (383) Commercial 56 13 Industrial 5 166 Other 3 (6) Total Service Area Sales 105 (210) Wholesale Energy Sales 2,779 3,891 Total 2,884 3,681 Service area sales were 7.8 billion kWh for the three months ended September 30, 1997, an increase of 105 million kWh, or 1.4%, over the third quarter of 1996. If normal weather conditions had been experienced in the third quarters of 1996 and 1997, service area sales would have increased by about 58 million kWh, or 0.7%, over the same period of 1996. Service area sales were 24.1 billion kWh for the nine months ended September 30, 1997, a decrease of 210 million kWh, or 0.9%, from the first nine months of 1996. This change was primarily due to a mild winter heating season in 1997 when compared to 1996. Sales to the Residential class declined by 4.2% for the period, while Industrial sales increased by 2.2%. Under normal weather conditions, service area sales would have increased by about 239 million kWh, or 1.0%, 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 6.6 billion kWh for the three months ended September 30, 1997, an increase of 2.8 billion kWh, or 72.1%, from the same period of 1996, despite the reduction in PP&L's contractual bulk power sales to JCP&L. Improved availability of generating units, along with increased power purchases, allowed for increased bilateral sales. For the nine months ended September 30, 1997, the increase in wholesale energy sales was 3.9 billion kWh, or 35.4%. Operating Revenues The change in total operating revenues was attributable to the following: Sept. 30, 1997 vs. Sept. 30, 1996 Three Months Nine Months Ended Ended (Millions of Dollars) Base Rate Revenues - Service Area Sales Sales volume and sales mix effect $ 6 $13 Weather effect 4 (36) Unbilled revenues (1) 6 Energy Revenues (15) (16) SBRCA 2 8 Wholesale Revenues Energy and capacity 54 74 Reservation charges and other 10 24 Other 3 4 $63 $77 Operating revenues increased by $63 million, or 8.8%, during the three months ended September 30, 1997, from the same period in 1996. Revenue from sales of energy and capacity to wholesale customers increased by $54 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 reservation charges and capacity credits in the third quarter of 1997. Moderate sales growth to PUC and FERC jurisdictional customers also contributed to the increase in revenues. These increases were partially offset by a change in the regulatory treatment of energy costs. Specifically, beginning January 1, 1997, underrecovered energy costs are no longer recorded as energy revenues but as regulatory credits, which are offsets to "Other Operating Expenses". Operating revenues increased by $77 million, or 3.5%, during the nine months ended September 30, 1997, when compared with the first nine months of 1996. Revenue increases are attributable to the same factors identified above for the third quarter, as well as higher unbilled revenues. However, weather caused an unfavorable impact during the nine months ended September 30, 1997 versus September 30, 1996. Weather changes, most notably the extremely cold winter in 1996 versus a mild winter in 1997, decreased revenues by about $36 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. 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 $4.5 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, costs of power purchases, disposal costs 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 as presented in the evidentiary record of the proceeding: Amount Category of Stranded Cost (Millions of Dollars) Nuclear Generation(a) $2,825 Fossil Generation(a) 670 NUG Contracts 651 Regulatory Assets 354 $4,500 (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. Numerous parties have intervened in PP&L's 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 $1.1 billion. 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 other party in the proceeding. Evidentiary hearings in this matter were held in late-August. On September 12, 1997, the PUC extended the schedule for this proceeding by 30 days to allow time for the parties to engage in settlement discussions. On October 23, 1997, the PUC further extended the procedural schedule by 45 days for continued settlement discussions. If the parties reach a settlement of this proceeding, the settlement agreement will be filed with the PUC; the PUC could accept, reject or modify that settlement in its final order. If no settlement is reached, then the proceeding will continue pursuant to the established schedule under which the PUC's final order currently is due by March 26. PP&L cannot predict the outcome of the ongoing settlement discussions or the ultimate 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 PUC's final order in the restructuring proceeding -- either on a proposed settlement by the parties or as a result of a fully-litigated proceeding -- including the amount of stranded cost recovery approved by the PUC and the PUC's disposition of other issues raised; 2. The effect of the rate cap imposed under the provisions of the Customer Choice Act; 3. The actual market price of electricity over the transition period; 4. Future sales levels; and 5. 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 services to customers who do not choose an alternative supplier. Applying the CTC proposed in its restructuring plan (which is restricted by the rate cap) through the year 2005, it is estimated that PP&L would collect approximately $4 billion of its stranded costs. The remaining $500 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 do not actually occur, PP&L could experience a lower recovery of stranded costs. If the PUC's final order in the restructuring proceeding were to permit 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's final order -- either on a proposed settlement by the parties or as a result of a fully-litigated proceeding -- may result in changes to components or assumptions in PP&L's restructuring plan that could have an adverse effect on the amount of the CTC, the amount of stranded costs that are recoverable through the CTC or the overall amount of revenues to be collected from customers. 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 with respect to the restructuring proceeding. Based on the substantial amounts involved in the restructuring proceeding, should PP&L incur such a write-off or reduction in earnings, either one could be material in amount. Accordingly, PP&L is unable to predict the ultimate effect of the Customer Choice Act or the PUC's final order in the restructuring proceeding on its financial position, results of operation, future rate levels 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. Certain parties have brought actions in Pennsylvania Commonwealth Court challenging the constitutionality of the Customer Choice Act. PP&L has intervened in these proceedings in support of the Customer Choice Act. Rate Matters Refer to Financial Note 4 for information regarding rate matters. Fuel Expense Fuel expense for the three months ended September 30, 1997, increased by $10 million from the comparable period in 1996. This change was primarily due to increased generation at the Susquehanna nuclear station. During this period in 1996, an unplanned outage of Unit 2 occurred during July and the ninth refueling and inspection outage of Unit 1 began in September. During this same period in 1997, Unit 1 experienced a 100% availability factor while Unit 2 experienced a brief shutdown in September. The PJM Power Pool has begun operating with new marketing procedures under which companies bid their generators' output and buy or sell energy at a pool-wide market clearing price. Accordingly, PP&L has found it advantageous at times to independently schedule the operation of its coal- fired units rather than follow a PJM schedule, resulting in these units operating at higher output and causing an increase of coal-fired generation for the quarter. Fuel expense for the nine months ended 1997 compared to the same period in 1996 remained virtually unchanged. Power Purchases For the three months ended September 30, 1997, power purchases increased by $54 million over the comparable period in 1996. This increase was primarily due to greater quantities of power purchased from other utilities to meet increased energy marketing activities. For the nine months ended September 30, 1997, power purchases increased by $109 million over the comparable period in 1996. This increase was primarily due to greater quantities purchased from other utilities to meet planned and unplanned outages at the Susquehanna station and to meet increased energy marketing activities. The overall market price of power has been higher during 1997 than 1996. Coupled with the increase in quantities of power purchased, these higher prices contributed to the increase in purchased power costs. Other Operation and Maintenance Expense Other operation and maintenance expenses decreased by $7 million and $30 million, respectively, for the three and nine months ended September 30, 1997 over the comparable periods in 1996. Excluding the effect of underrecovered energy costs, operation and maintenance expenses increased by $2 million in both periods. Prior to 1997, underrecovered energy costs were accrued as energy revenues. Due to a change by the PUC, effective January 1, 1997 these underrecovered costs are now recorded as regulatory credits, subject to a maximum credit of $31.5 million for 1997. At September 30, 1997, these underrecovered costs have exceeded the limit by $9.9 million. These regulatory credits are reflected in the income statement as a reduction of operating expense to be recovered in PP&L's restructuring proceeding. Windfall Profits Tax - PP&L Global In July 1997, the U.K. enacted a windfall profits tax on privatized utilities. The tax is payable in two equal installments; the first installment is due in December 1997 and the second one is due in December 1998. SWEB's windfall profits tax was approximately 97 million pounds sterling, or about $159 million. Based on PP&L Global's 25% ownership interest in SWEB, PP&L Resources incurred a one-time charge against earnings of $40 million, or 24 cents per share, in the third quarter of 1997. Subsequent to September 30, 1997, SWEB revised its estimate of the windfall profits tax from 97 million pounds sterling to approximately 90 million pounds sterling, or about $148 million. The reduction in PP&L Resources' share of the tax, which is not material, is expected to be recorded during the fourth quarter. Financial Condition Financing Activities The following financings have occurred through September 30, 1997: o From January through October 1997, PP&L Resources issued $68 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 acquired 79.10% 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. As of September 30, 1997, borrowings under this credit facility were $190 million. Refer to Financial Note 7 for additional information. Financing and Liquidity The change in cash and cash equivalents for the nine months ended September 30, 1997 decreased $132 million for PP&L Resources from the comparable period in 1996. The reasons for this change were: o A $53 million decrease in cash provided by operating activities due, in part, to cash outflows for a refueling outage of Susquehanna Unit 2 and a buyout of a contract with a non-utility generator. o A $210 million decrease in cash used in investing activities due to subsidiaries liquidating long-term investments to make funds available for other investments and to a reduction in the amount of investment in electric energy projects by PP&L Global. o A $289 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 also was a $106 decrease in the issuance of long-term debt and a $65 million increase in the retirement of long-term debt. Offsetting these outflows was PP&L's issuance of $250 million of preferred securities. 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 investments in world-wide energy projects by PP&L Global. Financial Indicators The ratio of pre-tax income to interest charges was 3.4 and 3.6, respectively, for the nine months ended September 30, 1997 and 1996. The annual per share dividend rate on common stock was unchanged at $1.67 per share. The ratio of the market price to book value of common stock was 130% at September 30, 1997, compared with 131% at September 30, 1996. Unregulated Investments PP&L Global continues to pursue opportunities to develop and acquire electric generation, transmission and distribution facilities in the United States and abroad. As of September 30, 1997, PP&L Global 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. PP&L Global's principal investments to date are in SWEB and Emel. Refer to "Windfall Profits Tax - PP&L Global" for information regarding the effect of the U.K.'s windfall profits tax on the investment in SWEB. In July 1997, PP&L Global acquired a 25.05% interest in Emel at a cost of approximately $118 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. Under a shareholders' agreement, PP&L Global and another major shareholder, Las Espigas Group, jointly control Emel's board of directors. PP&L Resources' other unregulated subsidiary, PP&L Spectrum, offers energy-related products and services inside and 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. In February 1997, PP&L 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 61,000 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. A number of the major parties, including PP&L, entered into a joint settlement agreement resolving all of the issues in the Pennsylvania utilities' pilot proceedings. In August 1997, the PUC issued an order modifying this settlement and modifying and approving PP&L's pilot program. In October 1997, PP&L submitted its pilot program compliance filing to the PUC. Under the current schedule, retail customers participating in the PP&L and other pilot programs will begin to receive power from their supplier of choice in November 1997. The customers selected for the pilot programs are now choosing their electricity supplier. The PUC has extended the state-wide deadline to choose an electricity supplier from October 25 to November 14, 1997. 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. To date, approximately 42 suppliers have obtained such licenses to participate in the pilot programs. PP&L will provide all transmission and distribution, customer service and back-up energy supply services to participating customers. In June 1997, the PUC approved PP&L's application for a license to act as an electric generation supplier. This license permits PP&L to participate in the various retail access pilot programs of the other Pennsylvania utilities, and PP&L currently is offering electric supply to the participating customers of those utilities. 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 its 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 the FERC. However, several parties moved to intervene and protested the new rates in the tariff. In July 1997, the FERC rejected PP&L's rates and ordered that the rates which had been in effect prior to the July 1996 filing be reinserted into the tariff. Hearings have been scheduled in this matter for April 1998. 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 compliance with Order 888-A, in July 1997 PP&L filed a revised open access transmission tariff. PP&L also requested in that filing that the FERC approve certain transmission tariff rate changes. The FERC has not yet acted on that filing. Under the new FERC 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 the 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. The 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 September 1997, PP&L filed with the FERC a request to lower the applicable PP&L revenue requirement currently set forth in the PJM open access transmission tariff. The new revenue requirement results from PP&L's use of the same test year and cost support data used in the PUC restructuring proceeding. PP&L requested that the new revenue requirement take effect on November 1, 1997. The FERC has taken no action on this filing. In September 1997, PP&L also filed with the FERC a request to approve new revenue requirements and rates for the PP&L open access transmission tariff. No customers currently take service under that tariff. As with the PJM tariff filing, the new revenue requirements and rates requested by PP&L are based on the same test year and cost support data used by PP&L in its PUC restructuring proceeding. The FERC has taken no action in this filing. In July 1997, the 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. In October 1997, PP&L made an application to the United States Department of Energy for an export license to sell capacity and/or energy to electric utilities in Canada. If this application is granted, PP&L will be able to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities. PP&L RESOURCES, INC. AND PP&L, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Notes to Financial Statements for information concerning rate matters and PP&L's restructuring proceeding before the PUC under the Customer Choice Act. Reference is made to PP&L's 1996 Form 10-K for information concerning a federal antitrust suit by SER, one of the non-utility generating companies from which PP&L purchases power under PURPA, against PP&L in the District Court for alleged improper curtailment of power purchases under the power purchase agreement between the parties. In May 1997, the U.S. Court of Appeals for the Third Circuit affirmed the District Court's dismissal of this suit. In September 1997, SER requested the United States Supreme Court to review the Third Circuit's decision. PP&L cannot predict the outcome of this proceeding. Reference is made to PP&L's 1996 Form 10-K for information concerning a suit by Mon Valley Steel Company, Inc. against PP&L and two of its subsidiaries regarding the 1992 sale to Mon Valley of Tunnelton Mining Company. The suit was settled in August 1997 on terms which have no material effect on PP&L. Reference is made to PP&L's 1996 Form 10-K for information concerning PP&L's complaint to the Surface Transportation Board regarding coal transportation rates charged by three rail carriers. In September 1997, PP&L reached an agreement with the carriers to settle this case. Under the terms of the settlement, PP&L would pay lower coal transportation rates to the carriers. However, the settlement is conditioned on the outcome of the joint Norfolk Southern/CSX application to take control of Conrail, which is pending before the Surface Transportation Board. PP&L cannot predict the outcome of this proceeding or its ultimate impact on PP&L's coal transportation rates. Reference is made to PP&L's 1996 Form 10-K for information concerning complaints by PP&L and 16 unrelated parties against 64 other parties in District Court seeking reimbursement under Superfund for costs incurred at the Novak landfill site in Lehigh County, Pennsylvania, as well as an action by EPA against PP&L and 29 other parties under section 107 of CERCLA to recover EPA's costs at the site. The parties have reached tentative settlements in both of these actions. PP&L's allocated share of the costs at this site is not expected to be material. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 12 - Computation of Ratio of Earnings to Fixed Charges 27 - Financial Data Schedule (b) Reports on Form 8-K Report dated July 14, 1997 Item 5. Other Events Information regarding the effect of the U.K. windfall profits tax on PP&L Resources. Report dated September 12, 1997 Item 5. Other Events Information regarding (i) a schedule extension in PP&L's restructuring case; and (ii) corporate name changes of Pennsylvania Power & Light Company to PP&L, Inc., Power Markets Development Company to PP&L Global, Inc., and Spectrum Energy Services Corporation to PP&L Spectrum, Inc., effective September 12, 1997. 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 CERCLA - Comprehensive Environmental Response, Compensation and Liability Act Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation enacted to address environmental issues including acid rain, ozone and toxic air emissions CTC - Competitive transition charge Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice and Competition Act) - legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity DEP - Pennsylvania Department of Environmental Protection 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) - federal 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. 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 PP&L - PP&L, Inc. (formerly Pennsylvania Power & Light Company) PP&L Capital Funding - PP&L Capital Funding, Inc., PP&L Resources' debt financing subsidiary PP&L Global - PP&L Global, Inc., a PP&L Resources' unregulated subsidiary which invests in and develops world-wide power projects (formerly Power Markets Development Company) PP&L Resources - PP&L Resources, Inc., the parent holding company of PP&L, PP&L Global and PP&L Spectrum PP&L Spectrum - PP&L Spectrum, Inc., a PP&L Resources' unregulated subsidiary which offers energy-related products and services inside and outside of PP&L's service territory (formerly Spectrum Energy Services Corporation) preferred securities - Company-obligated mandatorily redeemable securities of subsidiary holding solely parent debentures PUC (Pennsylvania Public Utility Commission) - state agency that regulates certain ratemaking, services, 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 PURPA - (Public Utility Regulatory Policies Act of 1978) - legislation passed by Congress to encourage energy conservation, efficient use of resources and equitable rates. SBRCA - Special Base Rate Credit Adjustment SEC - Securities and Exchange Commission SER - Schuylkill Energy Resources, Inc. SFAS (Statement of Financial Accounting Standards) - accounting and financial reporting rules issued by the FASB 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 Superfund - Federal and state environmental 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 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) PP&L, Inc. (Registrant) Date: November 10, 1997 /s/ R. E. Hill R. E. Hill Senior Vice President-Financial (PP&L Resources, Inc. and PP&L, Inc. /s/ J. J. McCabe J. J. McCabe Vice President & Controller (PP&L Resources, Inc. and PP&L, Inc.) EX-27 2
UT 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 September 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000317187 PP&L, INC. 1,000,000 9-MOS DEC-31-1996 SEP-30-1997 PER-BOOK 6,756 662 635 1,428 0 9,481 1,476 39 1,095 2,610 295 171 2,732 0 0 93 150 0 94 58 3,278 9,481 2,250 192 1,636 1,828 422 6 428 157 271 28 243 0 0 576 0 0
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