-----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, HZGZH+XOjvUzPqia9bBYGpXs9N5d95L7OQdTuWTbBouqbal0T+tryz+582QNFDT7 xQ3uxQBnGEez/syc/lf2qg== 0000922224-97-000002.txt : 19970303 0000922224-97-000002.hdr.sgml : 19970303 ACCESSION NUMBER: 0000922224-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970228 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PP&L RESOURCES INC CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11459 FILM NUMBER: 97546710 BUSINESS ADDRESS: STREET 1: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH STREET STREET 2: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 181011179 10-K 1 (PP&L LOGO APPEARS HERE) PP&L Resources, Inc. Pennsylvania Power & Light Company FORM 10 - K Annual Report to the Securities and Exchange Commission For the Year Ended December 31, 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________ to ___________ Commission File Registrant;State of Incorporation; IRS Employer Number Address and Telephone Number Identification No. 1-11459 PP&L Resources, Inc. 23-2758192 (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock New York & Philadelphia Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None Commission File Registrant;State of Incorporation; IRS Employer Number Address and Telephone Number Identification No. 1-905 PENNSYLVANIA POWER & LIGHT COMPANY 23-0959590 (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Preferred Stock 4-1/2% New York & Philadelphia Stock Exchanges 3.35% Series Philadelphia Stock Exchange 4.40% Series New York & Philadelphia Stock Exchanges 4.60% Series Philadelphia Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. PP&L Resources, Inc. [ ] Pennsylvania Power & Light Company [ X ] Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. PP&L Resources, Inc. Yes X No Pennsylvania Power & Light Company Yes X No The aggregate market value of the voting common stock held by non- affiliates of PP&L Resources, Inc. at January 31, 1997 was $3,715,517,738. PP&L Resources, Inc. held all 157,300,382 outstanding common shares, no par value,of Pennsylvania Power & Light Company. The aggregate market value of the voting preferred stock held by non-affiliates of Pennsylvania Power & Light Company at January 31, 1997 was $435,250,434. The number of shares of PP&L Resources, Inc. Common Stock, $.01 par value, outstanding on January 31, 1997 was 163,319,461. Documents incorporated by reference: Registrants have incorporated herein by reference certain sections of their 1997 Notices of Annual Meetings and Proxy Statements which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1996. Such Proxy Statements will provide the information required by Part III of this Report. PP&L RESOURCES, INC. PENNSYLVANIA POWER & LIGHT COMPANY FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1996 TABLE OF CONTENTS This combined Form 10-K is separately filed by PP&L Resources, Inc. and Pennsylvania Power & Light Company. Prior to the filing of the combined Form 10-Q for the quarter ended June 30, 1995, PP&L Resources, Inc. was not a reporting company for the purposes of the Securities Exchange Act of 1934 and Pennsylvania Power & Light Company filed its own separate reports on Form 10-K. Information contained herein relating to Pennsylvania Power & Light Company is filed by PP&L Resources, Inc. and separately by Pennsylvania Power & Light Company on its own behalf. Pennsylvania Power & Light Company makes no representation as to information relating to PP&L Resources, Inc. or its subsidiaries, except as it may relate to Pennsylvania Power & Light Company. Item Page PART I 1. Business ............................................. 1 2. Properties ........................................... 14 3. Legal Proceedings .................................... 14 4. Submission of Matters to a Vote of Security Holders .. 18 Executive Officers of the Registrants ................ 19 PART II 5. Market for the Registrants' Common Equity and Related Stockholder Matters .................................. 21 6. Selected Financial Data .............................. 21 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 21 8. Financial Statements and Supplementary Data .......... 22 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................. 23 PART III 10. Directors and Executive Officers of the Registrants .. 87 11. Executive Compensation ............................... 87 12. Security Ownership of Certain Beneficial Owners and Management ................................ 87 13. Certain Relationships and Related Transactions ....... 88 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................................. 89 Signatures ........................................... 91 Exhibit Index ........................................ 92 Computation of Ratio of Earnings to Fixed Charges .... 105 Glossary of Terms and Abbreviations AFUDC (Allowance for Funds Used During Construction) - the cost of equity and debt funds used to finance construction projects that is capitalized as part of construction cost. Atlantic - Atlantic City Electric Company BG&E - Baltimore Gas & Electric Company Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation passed by Congress to address environmental issues including acid rain, ozone and toxic air emissions. DEP - Pennsylvania Department of Environmental Protection District Court - United States District Court for the Eastern District of Pennsylvania DOE - Department of Energy 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. ECR (Energy Cost Rate) - a tariff applied to PUC-jurisdictional customers to recover fuel and other energy costs. Differences between actual and estimated amounts are collected or refunded to customers. The ECR was terminated effective December 1996. EMF - Electric and Magnetic Fields Energy Act (Energy Policy Act of 1992) - legislation passed by Congress to promote competition in the electric energy market for bulk power. EPA - Environmental Protection Agency ESOP - Employee Stock Ownership Plan FASB (Financial Accounting Standards Board) - a rulemaking organization that establishes financial accounting and reporting standards. FGD - Flue gas desulfurization equipment installed at coal-fired power plants to reduce sulfur dioxide emissions. FERC (Federal Energy Regulatory Commission) - government agency that regulates interstate transmission and sale of electricity and related matters. IBEW - International Brotherhood of Electrical Workers IEC (Interstate Energy Company) - a subsidiary of PP&L that operates an oil and gas pipeline. ISO - Independent System Operator JCP&L - Jersey Central Power & Light Company Major utilities - Atlantic, BG&E and JCP&L MSHA - Mine Safety and Health Administration NJDEP - New Jersey Department of Environmental Protection NPDES - National Pollutant Discharge Elimination System NRC - Nuclear Regulatory Commission 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 OSM - United States Office of Surface Mining Pa. CNI - Pennsylvania Corporate Net Income Tax 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 PJM (Pennsylvania - New Jersey - Maryland Interconnection Association) - Mid-Atlantic power pool consisting of 11 operating electric utilities, including PP&L. Plan - PP&L's noncontributory defined benefit pension plan. PMDC (Power Markets Development Company) - PP&L Resources' unregulated subsidiary formed to invest in and develop world-wide power markets. PP&L - Pennsylvania Power & Light Company PP&L Resources (PP&L Resources, Inc.) - parent holding company of PP&L, PMDC and Spectrum. PSE&G - Public Service Electric & Gas Company PUC (Pennsylvania Public Utility Commission) - agency that regulates certain ratemaking, accounting, and operations of Pennsylvania utilities. PUC Decision - final order issued by the PUC on September 27, 1995 pertaining to PP&L's base rate case filed in December 1994. PURPA (Public Utility Regulatory Policies Act of 1978) - legislation passed by Congress to encourage energy conservation, efficient use of resources, and equitable rates. RCRA - 1976 Resource Conservation and Recovery Act 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. Spectrum (Spectrum Energy Services Corporation) - PP&L Resources' unregulated subsidiary formed to offer energy related products and services. STAS (State Tax Adjustment Surcharge) - rate adjustment mechanism to customer bills for changes in certain state taxes. Superfund - Federal and state legislation that addresses remediation of contaminated sites. SWEB - South Western Electricity plc, a British regional electric utility company. UGI - UGI Corporation VEBA (Voluntary Employee Benefit Association Trust) - trust accounts for health and welfare plans for future payments to employees, retirees or their beneficiaries. VERP - Voluntary Early Retirement Program PART I ITEM 1. BUSINESS Terms and abbreviations appearing in "BUSINESS" are explained in the glossary. BACKGROUND To take advantage of new business opportunities, both domestically and in foreign countries, PP&L formed a holding company structure in April 1995. As a result of this restructuring, PP&L became a direct subsidiary of PP&L Resources. PP&L Resources is the parent company of PP&L, PMDC and Spectrum. PP&L is an operating electric utility, incorporated under the laws of the Commonwealth of Pennsylvania in 1920. In 1995, PP&L Resources also became the parent holding company of PMDC. PMDC engages in unregulated business activities through investments in electric energy projects. See "Increasing Competition" in the Review of the Financial Condition and Results of Operations and Financial Note 9 for additional information regarding PMDC. In 1995, PP&L Resources formed Spectrum, an unregulated subsidiary, which offers energy-related products and services to PP&L's existing customers and to others outside of PP&L's service territory. Other subsidiaries may be formed by PP&L Resources to take advantage of new business opportunities. PP&L is PP&L Resources' principal subsidiary (approximately 97% of consolidated assets as of December 31, 1996), and the financial condition and results of operation of PP&L are currently the principal factors affecting the financial condition and results of operations of PP&L Resources. The electric utility industry, including PP&L, has experienced and will continue to experience a significant increase in the level of competition in the energy supply market. The Energy Act amended the PUHCA to create a new class of independent power producers, and amended the Federal Power Act to provide open access to electric transmission systems for wholesale transactions. In addition, in December 1996 legislation was enacted in Pennsylvania to restructure the state's electric utility industry in order to create retail access to a competitive market for the generation of electricity. PP&L has announced its support for full customer choice of their energy supplier for all customer classes. See "Pennsylvania Restructuring Legislation" on page 27 and "Increasing Competition" on page 36 for a discussion of pending PUC and FERC proceedings on industry competition and PP&L's involvement in those proceedings. PP&L is subject to regulation as a public utility by the PUC and is subject in certain of its activities to the jurisdiction of the FERC under Parts I, II and III of the Federal Power Act. PP&L Resources and PP&L have been exempted by the SEC from the provisions of PUHCA applicable to them as holding companies. PP&L is subject to the jurisdiction of the NRC in connection with the operation of the two nuclear-fueled generating units at PP&L's Susquehanna station. PP&L owns a 90% undivided interest in each of the Susquehanna units and Allegheny Electric Cooperative, Inc. owns a 10% undivided interest in each of those units. PP&L is also subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to air and water quality, land use and other environmental matters. The operations of PP&L are subject to the Occupational Safety and Health Act of 1970, and the coal cleaning and loading operations of a PP&L subsidiary are subject to the Federal Mine Safety and Health Act of 1977. PP&L serves approximately 1.2 million customers in a 10,000 square mile territory in 29 counties of central eastern Pennsylvania (see Map on page 13), with a population of approximately 2.6 million persons. This service area has 129 communities with populations over 5,000, the largest cities of which are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. During 1996, about 98% of total operating revenue was derived from electric energy sales, with 35% coming from residential customers, 28% from commercial customers, 20% from industrial customers, 14% from other major utilities and the PJM and 3% from others. Wholly-owned subsidiary companies of PP&L principally are engaged in oil and gas pipeline operations and passive financial investing. PP&L operates its generation and transmission facilities as part of the PJM. The PJM, one of the world's largest power pools, includes 11 companies serving about 22 million people in a 50,000 square mile territory covering all or part of Pennsylvania, New Jersey, Maryland, Delaware, Virginia and Washington, D.C. In July 1996, all of the PJM companies, except PECO, submitted a comprehensive filing for FERC approval of changes to the PJM to accommodate greater competition and broader participation. The filing would (i) establish pool-wide transmission service tariffs to provide comparable, open-access service for all wholesale transactions throughout PJM; (ii) establish a price-based bidding system, with the resulting regional energy market open to all wholesale buyers and sellers of power; (iii) create a not-for-profit corporate entity in the form of an ISO responsible for impartial daily management and administration of the energy market and the transmission system; and (iv) develop an enhanced pool-wide planning function to be administered by the ISO. In August 1996, PECO filed a separate PJM restructuring proposal with the FERC, which differed significantly in several areas from the other companies' filing. In November 1996, the FERC rejected both proposals for restructuring the PJM for several reasons, the principal one being its view that the ISO was not sufficiently independent. FERC ordered the PJM companies to file a pool-wide tariff and modified coordination agreements reflecting the removal of provisions which FERC considered discriminatory against non-PJM members. In December 1996, all members of PJM submitted an interim 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 PJM companies currently are working with multiple stakeholders to develop a consensus package for the comprehensive restructuring of the PJM, which is expected to be filed with the FERC in May 1997. FINANCIAL CONDITION See "Earnings", "Electric Energy Sales", and "Financial Indicators" in the Review of the Financial Condition and Results of Operations for this information. CAPITAL EXPENDITURE REQUIREMENTS AND FINANCING See "Financial Condition - Capital Expenditure Requirements" on page 32 for information concerning PP&L's estimated capital expenditure requirements for the years 1997-2001. See "Environmental Matters" on page 34 and Note 14 to Financial Statements for information concerning PP&L's estimate of the cost to comply with the federal clean air legislation enacted in 1990, to address groundwater degradation and waste water control at PP&L facilities and to comply with solid waste disposal regulations adopted by the DEP. See "Financing and Liquidity" on page 32 for information concerning the 1997 financing plans for PP&L Resources and PP&L. POWER SUPPLY PP&L's system capacity (winter rating) at December 31, 1996 was as follows: Net Kilowatt Plant Capacity Nuclear-fueled steam station Susquehanna 1,995,000 (a) Coal-fired steam stations Montour 1,525,000 Brunner Island 1,469,000 Sunbury 389,000 Martins Creek 300,000 Keystone 210,000 (b) Conemaugh 194,000 (c) Holtwood 73,000 Total coal-fired 4,160,000 Oil-fired steam station Martins Creek 1,592,000 Combustion turbines and diesels 364,000 Hydroelectric 146,000 Total generating capacity 8,257,000 Firm purchases Hydroelectric 139,000 (d) Qualifying facilities 474,000 (e) Total firm purchases 613,000 Total system capacity 8,870,000 _____________________________ (a) PP&L's 90% undivided interest. (b) PP&L's 12.34% undivided interest. (c) PP&L's 11.39% undivided interest. (d) From Safe Harbor Water Power Corporation. (e) From NUG companies. Effective January 1, 1997, an additional 5,000 kilowatts of NUG capacity were added. The system capacity shown in the preceding tabulation does not reflect: (i) sales of capacity and energy to Atlantic; (ii) sales of capacity and energy to BG&E; (iii) sales of capacity and energy to JCP&L; or (iv) sales of capacity credits to GPU Service Corporation and Delmarva Power & Light Company for PJM installed capacity accounting purposes only, which capacity credit sales aggregated 284,000 kilowatts at December 31, 1996. Giving effect to the sales to Atlantic (129,000 kilowatts), BG&E (132,000 kilowatts), and JCP&L (756,000 kilowatts), PP&L's net system capacity at December 31, 1996 was 7,853,000 kilowatts. The capacity of generating units is based upon a number of factors, including the operating experience and physical condition of the units, and may be revised from time to time to reflect changed circumstances. During 1996, PP&L produced about 39.4 billion kwh in plants it owned. PP&L purchased 7.8 billion kwh under purchase agreements and received 1.7 billion kwh as power pool interchange. During the year, PP&L delivered about 1.3 billion kwh as pool interchange and about 6.3 billion kwh under purchase agreements. During 1996, 57% of the energy generated by PP&L's plants came from coal-fired stations, 38.5% from nuclear operations at the Susquehanna station, 2.5% from the Martins Creek oil-fired steam station and 2.0% from hydroelectric stations. The maximum one-hour demand recorded on PP&L's system is 6,607,000 kilowatts, which occurred on February 6, 1996. The maximum recorded one-hour summer demand is 6,021,000 kilowatts, which occurred on August 2, 1995. The peak demands do not include energy sold to Atlantic, BG&E or JCP&L. PP&L purchases energy from other utilities and FERC-certified power marketers when it is economically desirable to do so. From time to time, PP&L purchases energy from systems outside the PJM on a daily, weekly or monthly basis, at advantageous prices. The amount of energy purchased depends on a number of factors, including cost and the import capability of the transmission network. Under a compliance tariff filed with the FERC in July 1996, PP&L has been providing open access of available capability on its transmission system for use by wholesale entities on a basis that is comparable with PP&L's own use of its transmission facilities. In 1995, the FERC accepted a PP&L wholesale generating services tariff. This tariff enables PP&L to sell to other utilities and marketers reservations of output from PP&L's generating units during certain periods, with the option to purchase energy from these units. As of the end of 1996, about 60 utilities and marketers have signed service agreements under the tariff. Typically, a reciprocal agreement will enable PP&L to purchase energy from these same utilities and marketers. Transactions under these agreements will continue to allow PP&L to make more efficient use of its generating resources and provide benefits to both PP&L and the other utilities. At the end of 1996, PP&L filed with FERC for revisions to this tariff to unbundle transmission costs which are now part of its open access tariff. PP&L also sought FERC approval to sell power purchased from third parties, in addition to power from its own system resources. This "buy-for-resale" provision would increase PP&L's capabilities in making profitable wholesale transactions. See Note 4 to Financial Statements for additional information concerning the sale of capacity and energy to Atlantic, BG&E and JCP&L, the sale of capacity credits (but not energy) to other electric utilities in the PJM and the sale of transmission entitlements and the reservation of output from the Martins Creek units. In addition to the 474,000 kilowatts of non-utility generation shown in the preceding tabulation, PP&L is purchasing about 10,000 kilowatts of output from various other non-utility generating companies. The payments made to non-utility generating companies, all of whose facilities are located in PP&L's service area, are recovered from customers through base rate charges applicable to PUC- and FERC-jurisdictional customers. The PJM companies had 57.3 million kilowatts of installed generating capacity at December 31, 1996, and transmission line connections with neighboring power pools have the capability of transferring an additional 4 to 5 million kilowatts between the PJM and neighboring power pools. Through December 31, 1996, the maximum one-hour demand recorded on the PJM was approximately 48.5 million kilowatts, which occurred on August 2, 1995. PP&L is also a party to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated planning of generation and transmission facilities by the companies included in the PJM. PP&L has completed the conversion of the two oil-fired generating units at Martins Creek Steam Electric Station to burn both natural gas and oil. Dual fuel operation began in the second quarter of 1996. The IEC transmission facilities were converted to transport natural gas and oil through the existing oil pipeline. In November 1996, the Commonwealth Court of PA ruled against another party's appeal of the PUC's approval of IEC's application for gas transmission service. FUEL SUPPLY Coal During 1996, PP&L's generating stations burned about 8.4 million tons of bituminous coal and about 1.1 million tons of anthracite and petroleum coke. During 1996, 66% of the coal delivered to PP&L's generating stations was purchased under contracts and 34% was obtained through open market purchases. The amount of bituminous coal carried in inventory at PP&L's generating stations varies from time to time depending on market conditions and plant operations. As of December 31, 1996, PP&L's bituminous coal supply was sufficient for about 39 days of operations. Contracts with non-affiliated coal producers provided PP&L with about 4.4 million tons of bituminous coal in 1996 and are expected to provide PP&L with about 4.5 million tons in both 1997 and 1998. The coal burned in PP&L's generating stations contains both organic and pyritic sulfur. Mechanical cleaning processes are utilized to reduce the pyritic sulfur content of the coal. The reduction of the pyritic sulfur content by either mechanical cleaning or blending has lowered the total sulfur content of the coal burned to levels which permit compliance with current sulfur dioxide emission regulations established by the DEP. For information concerning PP&L's plans to achieve compliance with the federal clean air legislation enacted in 1990, see "Environmental Matters" on page 34 and Note 14 to Financial Statements. PP&L owns a 12.34% undivided interest in the Keystone station and an 11.39% undivided interest in the Conemaugh station, both of which are generating stations located in western Pennsylvania. The owners of the Keystone station have a long-term contract with a coal supplier to provide at least two-thirds of that station's requirements through 1999 and declining amounts thereafter until the contract expires at the end of 2004. The balance of the Keystone station requirements are purchased in the open market. The coal supply requirements for the Conemaugh station are being met from several sources through a blend of long-term and short-term contracts and spot market purchases. At December 31, 1996, PP&L's inventory of anthracite was about 3.6 million tons. PP&L's requirements for petroleum coke and any additional anthracite that may be required over the remainder of the expected useful lives of PP&L's anthracite-fired generating stations are expected to be obtained by contract and market purchases. Natural Gas During 1996, PP&L's Martins Creek Steam Electric Station consumed about 2,000,000 mcf of natural gas. All of this natural gas was purchased and transported under short-term agreements that were one month or less in duration. PP&L does not have any long-term agreements to purchase gas or gas transportation. Oil As of December 31, 1996, PP&L has an agreement with one supplier under which it can purchase up to 75% of the oil requirements for the Martins Creek units. The balance is purchased in the spot market. However, if there are price advantages to be realized from purchasing oil in the spot market, the contract permits PP&L to acquire up to 75% of its expected oil requirements for the Martins Creek units in that manner. The current agreement expires in mid-1997. During 1996, approximately 87% of the oil requirements for the Martins Creek units was purchased under PP&L's oil contracts and the balance was purchased on the spot market. Nuclear The nuclear fuel cycle consists of the mining of uranium ore and its milling to produce uranium concentrates; the conversion of uranium concentrates to uranium hexafluoride; the enrichment of uranium hexafluoride; the fabrication of fuel assemblies; the utilization of the fuel assemblies in the reactor; the temporary storage of spent fuel; and the permanent disposal of spent fuel. PP&L has entered into uranium supply agreements that satisfy 100% of the uranium concentrate requirements for the Susquehanna units through 1997 and approximately 50% of the requirements for the period 1998-1999. Deliveries under these agreements are expected to provide sufficient quantities of uranium concentrates to permit Unit 1 to operate into the first quarter of 2000 and Unit 2 to operate into the first quarter of 1999. PP&L has entered into agreements that satisfy 100% of its conversion requirements through 1997 and approximately 50% of its conversion requirements for the period 1998-1999. PP&L also has entered into agreements for other segments of the nuclear fuel cycle. Based upon the current operating plans for each of the Susquehanna units, the following table shows the years through which contracts, including options to extend, could provide the indicated segments of the nuclear fuel cycle: Enrichment 2014 Fabrication 2006 PP&L has elected to cancel all or a portion of potential deliveries under its existing enrichment contract during the period 1999 through 2002, and is currently evaluating its options for satisfying these requirements through 2004. Additional arrangements will be necessary to satisfy the remaining fuel requirements of the Susquehanna units over their anticipated useful lives. PP&L estimates that there is sufficient storage capability in the spent fuel pools at Susquehanna to accommodate the fuel that is expected to be discharged through the end of 1997. Federal law requires the federal government to provide for the permanent disposal of commercial spent nuclear fuel. Pursuant to the requirements of that law, DOE has initiated an analysis of a site in Nevada for a permanent nuclear waste repository. Progress on characterization of a proposed disposal facility has been slow, and the repository is not expected to be operational before 2010. Congress is considering new legislation designed to re-establish a schedule for the spent fuel disposal program. This legislation would authorize an above-ground interim storage facility, along with the permanent disposal facility, as part of an integrated disposal program. Even if this legislation is enacted and DOE is successful in building and operating the interim storage facility, it is unlikely that any spent fuel will be shipped from Susquehanna until well after the year 2005 because of the large volume of other utilities' spent fuel that is scheduled to be shipped before PP&L's spent fuel. Therefore, expansion of Susquehanna's spent fuel storage capability is necessary. To support this expansion, PP&L has contracted for the design and construction of a spent fuel storage facility employing dry fuel storage technology at the Susquehanna plant. The facility will be modular so that additional storage capacity can be added as needed. PP&L currently estimates that construction of the facility will be completed by mid-1997. Federal law also provides that the costs of spent nuclear fuel disposal are the responsibility of the generators of such wastes. PP&L includes in customer rates the fees charged by the DOE to fund the permanent disposal of spent nuclear fuel. In January 1997, PP&L joined over 30 other utilities in a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit seeking assurance of DOE's performance of its contractual obligation to accept the spent nuclear fuel and suspension of the payment of fees to that agency pending such performance. ENVIRONMENTAL MATTERS PP&L is subject to certain present and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters. See "Financial Condition - Capital Expenditure Requirements" on page 32 for information concerning environmental expenditures during 1996 and PP&L's estimate of those expenditures during the years 1997-2001. PP&L believes that it is presently in substantial compliance with applicable environmental laws and regulations. See "Environmental Matters" on page 34 and Note 14 to Financial Statements for information concerning federal clean air legislation enacted in 1990, groundwater degradation and waste water control at PP&L facilities, DEP's solid waste disposal regulations and PP&L's agreement with the DEP concerning remediation at certain sites of past operations. Other environmental laws, regulations and developments that may have a substantial impact on PP&L are discussed below. Air The Clean Air Act includes, among other things, provisions that: (a) require the prevention of significant deterioration of existing air quality in regions where air quality is better than applicable ambient standards; (b) restrict the construction of and revise the performance standards for new coal-fired and oil-fired generating stations; and (c) authorize the EPA to impose substantial noncompliance penalties of up to $25,000 per day of violation for each facility found to be in violation of the requirements of an applicable state implementation plan. The DEP administers the EPA's air quality regulations through the Pennsylvania State Implementation Plan and has concurrent authority to impose penalties for noncompliance. At this time, PP&L is meeting all requirements of Phase I of the Clean Air Act. Water To implement the requirements established by the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987, the EPA has adopted regulations including effluent standards for steam electric stations. The DEP administers the EPA's effluent standards through state laws and regulations relating, among other things, to effluent discharges and water quality. The standards adopted by the EPA pursuant to the Clean Water Act may have a significant impact on PP&L's existing facilities depending on the DEP's interpretation and future amendments to its regulations. The EPA and DEP limitations, standards and guidelines for the discharge of pollutants from point sources into surface waters are implemented through the issuance of NPDES permits. PP&L has the NPDES permits necessary for the operation of its facilities. Pursuant to the Surface Mining and Reclamation Act of 1977, the OSM has adopted effluent guidelines which are applicable to PP&L subsidiaries as a result of their past coal mining and continued coal processing activities. The EPA and the OSM limitations, guidelines and standards also are enforced through the issuance of NPDES permits. In accordance with the provisions of the Clean Water Act and the Reclamation Act of 1977, the EPA and the OSM have authorized the DEP to implement the NPDES program for Pennsylvania sources. Compliance with applicable water quality standards is assured by DEP review of NPDES permit conditions. PP&L's subsidiaries have received NPDES permits for their mines and related facilities. Solid and Hazardous Waste The RCRA regulates the generation, transportation, treatment, storage and disposal of hazardous wastes. RCRA also imposes joint and several liability on generators of solid or hazardous waste for clean-up costs. A revision of RCRA in late-1984 lowered the threshold for the amount of on-site hazardous waste generation requiring regulation and incorporated underground tanks used for the storage of petroleum and petroleum products as regulated units. Based upon the results of a survey of its solid waste practices, PP&L in the past has filed notices with the EPA indicating that hazardous waste is occasionally generated at all of its steam electric generating stations and service centers. PP&L has established specific operating procedures for handling this hazardous waste. Therefore, at this time RCRA and related DEP regulations are not expected to have a significant additional impact on PP&L. The provisions of Superfund authorize the EPA to require past and present owners of contaminated sites and generators of any hazardous substance found at a site to clean up the site or pay the EPA or the state for the costs of clean-up. The generators and past owners can be liable even if the generator contributed only a minute portion of the hazardous substances at the site. Present owners can be liable even if they contributed no hazardous substances to the site. The Pennsylvania Superfund law also gives the DEP broad authority to identify hazardous or contaminated sites in Pennsylvania and to order owners or responsible parties to clean up the sites. If responsible parties cannot or will not perform the clean-up, the DEP can hire contractors to clean up the sites and then require reimbursement from the responsible parties after the clean-up is completed. To date, PP&L has principally been involved in federal, rather than state, Superfund sites. In 1996, PP&L completed removal of coal tar from one subsurface accumulation at a former coal gasification plant site along Brodhead Creek, Monroe County, Pennsylvania and currently expects that significant additional remedial action will not be required. PP&L has entered into agreements with the adjacent property owner and DEP to share the past and future costs of remediating this site. PP&L's share of the costs is approximately $2.3 million, all of which has been spent. The EPA has placed the site of a former PP&L gas plant in Columbia, Pennsylvania on the national Superfund list. PP&L and another potentially responsible party had previously conducted a detailed investigation of the site, and PP&L removed a substantial amount of coal tar from a pedestrian tunnel at the rear of the property. However, coal tar remains in two brick pits on the site. There also is coal tar contamination of the soil and groundwater at the site and of river sediment adjacent to the site. PP&L signed a consent order with the DEP to remediate the brick pits and conduct additional investigations. The costs of investigation and remediation of the areas of the site where the agencies have required action are estimated at $2.6 million, all of which has been spent or is accrued. Further remediation of other areas of the site may be required, the costs of which are not now determinable but could be material. PP&L at one time also owned and operated several other gas plants in its service area. None of these sites is presently on the Superfund list. However, a few of them may be possible candidates for listing at a future date. PP&L expects to continue to investigate and, if necessary, remediate these sites. The cost of this work is not now determinable but could be material. See "LEGAL PROCEEDINGS" on page 14 for information concerning an EPA order and a complaint filed by the EPA in federal district court against PP&L and 35 unrelated parties for remediation of a Superfund site in Berks County, Pennsylvania; a complaint filed by PP&L and 16 unrelated parties in federal district court against other parties for contribution under Superfund relating to the Novak landfill Superfund site in Lehigh County, Pennsylvania and a related action by EPA against PP&L and 29 unrelated parties to recover the agency's past and future costs at the Novak landfill site; and an action by the EPA for reimbursement of the EPA's past response costs and remediation at the site of a former metal salvaging operation in Montour County, Pennsylvania. PP&L is involved in several other sites where it may be required, along with other parties, to contribute to investigation and remediation. Some of these sites have been listed by the EPA under Superfund, and others may be candidates for listing at a future date. Future investigation or remediation work at sites currently under review, or at sites currently unknown, 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. Low-Level Radioactive Waste Under federal law, each state is responsible for the disposal of low-level radioactive waste generated in that state. States may join in regional compacts to jointly fulfill their responsibilities. The states of Pennsylvania, Maryland, Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive Waste Compact. Efforts to develop a regional disposal facility in Pennsylvania are currently underway. Low-level radioactive wastes resulting from the operation of Susquehanna are currently being sent to Barnwell, South Carolina for disposal. In the event that this disposal option becomes unavailable or no longer cost effective, the low-level radioactive waste will be stored on-site at Susquehanna. PP&L cannot predict the future availability of low-level waste disposal facilities or the cost of such disposal. General Concerns have been expressed by some members of the scientific community and others regarding the potential health effects of EMFs. These fields are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Federal, state and local officials are focusing increased attention on this issue. PP&L is actively participating in the current research effort to determine whether EMFs cause any human health problems and is taking steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PP&L is unable to predict what effect the EMF issue might have on PP&L operations and facilities and the associated cost. In addition to the matters described above, PP&L and its subsidiaries have been cited from time to time for temporary violations of the DEP and EPA regulations with respect to air and water quality and solid waste disposal in connection with the operation of their facilities and may be cited for such violations in the future. As a result, PP&L and its subsidiaries may be subject to certain penalties which are not expected to be material in amount. PP&L is unable to predict the ultimate effect of evolving environmental laws and regulations upon its existing and proposed facilities and operations. In complying with statutes, regulations and actions by regulatory bodies involving environmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, PP&L may be required to modify, replace or cease operating certain of its facilities. PP&L may also incur material capital expenditures and operating expenses in amounts which are not now determinable. FRANCHISES AND LICENSES PP&L has authority to provide electric public utility service throughout its entire service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PP&L and companies to which it has succeeded and as a result of certification thereof by the PUC. PP&L has been granted the right to enter the streets and highways by the Commonwealth subject to certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth. PP&L operates Susquehanna Unit 1 and Unit 2 pursuant to NRC operating licenses which expire in 2022 and 2024, respectively. PP&L operates two hydroelectric projects pursuant to licenses which were renewed by the FERC in 1980: Wallenpaupack (44,000 kilowatts capacity) and Holtwood (102,000 kilowatts capacity). The Wallenpaupack license expires in 2004 and the Holtwood license expires in 2014. PP&L also owns one-third of the capital stock of Safe Harbor Water Power Corporation, which holds a project license which extends until 2030 for the operation of its hydroelectric plant. The total capability of the Safe Harbor plant is 417,500 kilowatts, and PP&L is entitled by contract to one-third of the total capacity (139,000 kilowatts). EMPLOYEE RELATIONS As of December 31, 1996, approximately 4,190 of PP&L's 6,428 full-time employees were represented by the IBEW under a three-year agreement which expires in May 1997. Page 13 contains a map of PP&L's service territory which shows its location, the location of each of PP&L's coal-fired, oil-fired, hydro and nuclear-fueled generating stations and the location of major population centers. ITEM 2. PROPERTIES The accompanying Map shows the location of PP&L's service area and generating stations. Reference is made to the "Utility Plant" section of Note 1 for information concerning investments in property, plant and equipment. Substantially all electric utility plant is subject to the lien of PP&L's first mortgage. For additional information concerning the properties of PP&L see Item 1, "BUSINESS - Power Supply" and "BUSINESS - Fuel Supply". ITEM 3. LEGAL PROCEEDINGS Reference is made to Notes to Financial Statements for information concerning rate matters. Reference is made to Item 1 "BUSINESS-Fuel Supply" for information concerning a lawsuit against DOE for failure of that agency to perform contractual obligations. In August 1991, a group of fuel oil dealers in PP&L's service area filed a complaint against PP&L in District Court alleging that PP&L's promotion of electric heat pumps and off- peak thermal storage systems had violated and continues to violate the federal antitrust laws. Specifically, the complaint alleged that PP&L's use of its PUC-filed tariff to provide a lower electric rate for newly constructed residences equipped with thermal storage systems, combined with PP&L's program of providing cash grants to developers and contractors for the installation of high efficiency heat pumps in these residences, allowed PP&L to illegally capture at least 70% of the market for heating in new residential construction within its service area. The complaint requested judgment against PP&L for a sum in excess of $10 million for the alleged antitrust violations, treble the damages alleged to have been sustained by the plaintiffs over the past four years. The complaint also requested a permanent injunction against all activities found to be illegal, including the cash grant program. PP&L filed a motion for summary judgment seeking to dispose of plaintiffs' claims in this case, and in September 1992, the judge ruled on this motion and dismissed all counts against PP&L. The plaintiffs appealed to the Court of Appeals for the Third Circuit. In April 1994, the Court of Appeals issued a decision which in part affirmed the lower court's grant of summary judgment for PP&L, but reversed the grant of summary judgment as to cash grants to developers based upon all-electric builder agreements. The District Court reacquired jurisdiction over this case. In February 1997, the parties reached an agreement in principle to settle this proceeding. The terms of this settlement would not have a material effect on PP&L. In August 1995, SER, one of the non-utility generating companies from which PP&L purchases power under the PURPA, brought suit against PP&L in the District Court. SER alleged that, since July 1994, PP&L has improperly curtailed power purchases from SER under the power purchase agreement between the parties. SER claims that such activity breached the power purchase agreement and violated the federal antitrust laws, among other counts. SER alleged that PP&L's actions resulted in loss of revenue from power sales of $1.6 million and an unquantified increase in its costs of operation. SER requested compensatory and punitive damages, as well as treble damages and attorneys' fees for alleged antitrust violations. In May 1996, the District Court granted PP&L's motion to dismiss the complaint. SER has appealed this decision to the U.S. Court of Appeals for the Third Circuit. In December 1995, PP&L filed a petition with the PUC for a declaratory order that it had acted properly in curtailing purchases from SER and other NUGs during minimum generation emergencies on the PJM system. The PUC has stayed a determination in this case pending a FERC decision regarding PP&L's request to decertify SER as a qualifying cogeneration facility (see discussion below). In November 1995, PP&L initiated a civil action against SER in the Lehigh County Court of Common Pleas. The principal issue is whether SER and an affiliate of SER properly used the steam generated by the plant in accordance with the terms of the contract. Under the contract, if the steam was used properly, SER is entitled to a rate of 6.6 cents per KWH; if not, it is entitled to a rate of only 5.0 cents per KWH. The total annual difference in payment under the two rates is about $9 million. In April 1996, the Court concluded that PP&L must seek a determination by the FERC prior to reducing the rate paid to SER. Accordingly, in July 1996 PP&L filed a motion with the FERC to revoke SER's status as a qualifying cogeneration facility. PP&L's motion alleges that SER has engaged in a conscious and continuing scheme to mislead PP&L and the FERC and that SER has never complied with the FERC's requirements for a qualifying cogeneration facility. This motion is pending. In a related matter, in June 1996 SER filed a state court lawsuit against PP&L in Lehigh County, Pennsylvania. In this lawsuit, SER restates its allegations concerning PP&L's procedures for curtailing power deliveries from SER during periods of minimum generation emergencies declared by the PJM. SER's claims include breach of contract, fraud, negligent misrepresentation and breach of duty of good faith and fair dealing. In addition, SER claims that public statements by PP&L were libelous. In January 1997, the Court stayed SER's state law claims against PP&L pending consideration by the PUC of PP&L's minimum generation petition and dismissed SER's libel claims. PP&L cannot predict the outcome of these proceedings. In April 1991, the U.S. Department of Labor through its MSHA issued citations to one of PP&L's coal-mining subsidiaries for alleged coal-dust sample tampering at one of the subsidiary's mines. The MSHA at the same time issued similar citations to more than 500 other coal-mine operators. Based on a review of its dust sampling procedures, the subsidiary is contesting all of the citations. It is believed at this time, based on the information available, that the MSHA allegations are without merit. Citations were also issued against the independent operator of another subsidiary mine, who is also contesting the citations issued with respect to that mine. The Administrative Law Judge assigned to the proceedings ordered that one case be tried against a single mine operator unrelated to PP&L to determine whether the MSHA could prove its general allegations regarding sample tampering. In April 1994, the Judge ruled in favor of the mine operator and vacated the 75 citations against it. The MSHA appealed the Judge's decision to the Mine Safety and Health Review Commission. In November 1995, the Commission affirmed the Judge's rulings in favor of the operator. The Secretary of Labor has appealed the Commission's decision to the U.S. Court of Appeals for the District of Columbia Circuit. PP&L cannot predict the outcome of these proceedings. On July 25, 1994, Mon Valley Steel Company, Inc. filed suit in the Court of Common Pleas of Fayette County, Pennsylvania, against PP&L and two of its subsidiaries, claiming that PP&L and those subsidiaries made fraudulent misrepresentations during negotiations for the 1992 sale to Mon Valley of Tunnelton Mining Company. Tunnelton was a coal-mining operation formerly owned by PP&L's subsidiary, Pennsylvania Mines Corporation. Specifically, Mon Valley alleges that PP&L and those subsidiaries misrepresented Tunnelton's capability to produce coal, as well as the amount of funding Tunnelton would receive for mine closing costs. Mon Valley is claiming about $6 million to cover mine closing costs as well as punitive damages in an unspecified amount. In July 1994, PP&L and those subsidiaries filed a legal action in the Court of Common Pleas of Allegheny County, Pennsylvania, requesting a judicial determination that they had not breached any of their contractual obligations to Mon Valley. While these matters were pending, Mon Valley was forced into involuntary bankruptcy by its creditors and, accordingly in August 1996, PP&L removed the Fayette County action to Federal Bankruptcy Court. The Allegheny County action by PP&L has been stayed pending the Bankruptcy Court's determination. PP&L cannot predict the outcome of these proceedings. In August 1994, PP&L filed a rate complaint with the Interstate Commerce Commission, now the Surface Transportation Board, challenging Consolidated Rail Corporation's (Conrail's) coal transportation rates from interchange points with connecting carriers to PP&L's power plants. In September 1995, PP&L amended its complaint to add the connecting carriers, CSX Corporation and Norfolk Southern Corporation, as additional defendants. As a result of an Surface Transportation Board ruling in December 1996, PP&L's complaint against Conrail alone was dismissed, but PP&L's case against Conrail, CSX and Norfolk Southern jointly continues. PP&L cannot predict the outcome of this proceeding or its ultimate impact on PP&L's coal transportation rates. In August 1991, PP&L and 35 other unrelated parties received an EPA order under Superfund requiring that certain remedial actions be taken at a former oil recovery site in Berks County, Pennsylvania, which has been included on the federal Superfund list. PP&L had been identified by the EPA as a potentially responsible party, along with over 100 other parties. The EPA order required remediation by the 36 named parties of four specific areas of the site. Remedial action under this order has been completed at a cost of approximately $2 million, of which PP&L's interim share was approximately $50,000. The EPA at the same time filed a complaint under Section 107 of Superfund in the District Court against PP&L and the same 35 unrelated parties. The complaint asks the District Court to hold the parties jointly and severally liable for all EPA's past costs at the site and future costs of remediating some of the remaining areas of the site. The EPA claims it has spent approximately $21 million to date. PP&L and a group of the other named parties have sued in District Court approximately 460 other parties that have contributed waste to the site, demanding that these companies contribute to the clean-up costs. In July 1993, PP&L and 33 of the 35 unrelated parties received an EPA order under Section 106 of Superfund requiring remediation of the remaining areas of the site identified by EPA. Current estimates of remediating the remainder of the site range from $50 million to $200 million. These costs would be shared among the responsible parties. PP&L and other parties to the lawsuit have reached a settlement with the federal government regarding these claims. PP&L's share is not material. In December 1991, PP&L and 16 unrelated parties filed complaints against 64 other parties in District Court seeking reimbursement under Superfund for costs the plaintiffs have incurred and will incur to investigate and remediate the Novak landfill site in Lehigh County, Pennsylvania. The complaints allege that the 64 defendants generated or transported substances disposed of at the Superfund site. A Remedial Investigation and Draft Feasibility Study for the site has been completed at a cost of approximately $3 million, of which PP&L's share was approximately $200,000. EPA's selected remedy is currently estimated to cost approximately $20 million. EPA has issued a 106 Order against PP&L and several other parties to implement this remedy. In January 1997, EPA filed an action against PP&L and 29 other parties under section 107 of CERCLA to recover its costs at the site, which it alleges are in excess of $990,000. The parties currently are negotiating with EPA. PP&L's allocated share is not expected to be material. In April 1993, PP&L received an order under Section 106 of Superfund requiring that actions be taken at the site of a former metal salvaging operation in Montour County, Pennsylvania. The EPA has taken similar action with two other potentially responsible parties at the site. The cost of compliance with the order is currently estimated to be approximately $37 million. The EPA currently estimates that additional remediation work not covered by the order will cost an additional $36 million. In addition, the EPA has already incurred clean-up costs of approximately $5 million to date. The EPA had indicated that it will seek to recover these additional costs at a later date. PP&L's records indicate that scrap metal, wire and transformers were sold to the salvage operator between 1969 and 1971. Current information indicates that PP&L's contribution to the site, if any, is de minimis. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANTS Officers of PP&L Resources and PP&L are elected annually by their Boards of Directors to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, or any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years. Listed below are the executive officers of: PP&L Resources, Inc. Effective Date of Election to Name Age Position Present Position William F. Hecht 53 Chairman, President and Chief Executive February 24, 1995 Officer Francis A. Long 56 Executive Vice President February 24, 1995 Robert G. Byram* 51 Senior Vice President- Nuclear - PP&L December 20, 1995 Ronald E. Hill 54 Senior Vice President- Financial August 1, 1996 Robert D. Fagan* 51 President - Power Markets Development Company December 20, 1995 Robert J. Grey 46 Senior Vice President, General Counsel and Secretary March 1, 1996 Joseph J. McCabe 46 Vice President and Controller August 1, 1995 Pennsylvania Power & Light Company: Effective Date of Election to Name Age Position Present Position William F. Hecht 53 Chairman, President and Chief Executive Officer January 1, 1993 Francis A. Long 56 Executive Vice President and Chief Operating Officer January 1, 1993 Robert G. Byram 51 Senior Vice President- Nuclear March 26, 1993 Ronald E. Hill 54 Senior Vice President- Financial January 1, 1994 John R. Biggar 52 Vice President- Finance August 1, 1996 Robert J. Grey 46 Senior Vice President, General Counsel and Secretary March 1, 1996 Joseph J. McCabe 46 Vice President and Controller August 1, 1995 * Mr. Byram and Mr. Fagan have been designated executive officers of PP&L Resources by virtue of their respective positions at PP&L Resources subsidiaries. Each of the above officers, with the exception of Mr. Fagan, Mr. Grey, and Mr. McCabe, has been employed by PP&L for more than five years as of December 31, 1996. Mr. Fagan joined PMDC - then a PP&L subsidiary - in November 1994. Prior to that time, he was Vice President and General Manager at Mission Energy Company. Mr. McCabe joined PP&L in May 1994 and was previously a partner of Deloitte & Touche LLP. Mr. Grey joined PP&L in March 1995. He had been General Counsel of Long Island Lighting Company since 1992. Prior to that time, he held the position of partner at the law firm of Preston Gates & Ellis. Prior to election to the positions shown above, the following executive officers held other positions with PP&L since January 1, 1992: Mr. Hecht was President and Chief Operating Officer; Mr. Long was Senior Vice President - System Power & Engineering; Mr. Byram was Vice President - Nuclear Operations and Senior Vice President - System Power & Engineering; Mr. Hill was Vice President, Comptroller and Senior Vice President - Financial and Treasurer of PP&L Resources; Mr. Biggar was Vice President-Finance and Vice President - Finance and Treasurer; Mr. Grey was Vice President, General Counsel and Secretary, and Mr. McCabe was Controller. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Additional information for this item is set forth in the section entitled "Shareowner and Investor Information" on pages 81 through 83 of this report, and the number of common shareowners is set forth in the section entitled "Selected Financial and Operating Data" on page 79. ITEM 6. SELECTED FINANCIAL DATA Information for this item is set forth in the section entitled "Selected Financial and Operating Data" on pages 79 and 80 of this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information for this item is set forth in the section entitled "Review of the Financial Condition and Results of Operations of PP&L Resources, Inc. and Pennsylvania Power & Light Company" on pages 24 through 39 of this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are set forth on the pages indicated below. Page Report of Independent Accountants 41 Independent Auditors' Report 42 Management's Report on Responsibility for Financial Statements 43 Financial Statements: PP&L Resources, Inc. Consolidated Statement of Income for the Three Years Ended December 31, 1996 45 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1996 46 Consolidated Balance Sheet at December 31, 1996 and 1995 47 Consolidated Statement of Shareowners' Common Equity for the Three Years Ended December 31, 1996 49 Consolidated Statement of Preferred Stock at December 31, 1996 and 1995 49 Consolidated Statement of Long-Term Debt at December 31, 1996 and 1995 51 Pennsylvania Power & Light Company Consolidated Statement of Income for the Three Years Ended December 31, 1996 53 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1996 54 Consolidated Balance Sheet at December 31, 1996 and 1995 55 Consolidated Statement of Shareowners' Common Equity for the Three Years Ended December 31, 1996 57 Consolidated Statement of Preferred Stock at December 31, 1996 and 1995 57 Consolidated Statement of Long-Term Debt at December 31, 1996 and 1995 59 Notes to Financial Statements 60 Supplemental Financial Statement Schedule: II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 1996 86 Selected Financial and Operating Data for the Five Years Ended December 31, 1996 79 Quarterly Financial, Common Stock Price and Dividend Data 84 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Based upon a recommendation of its Audit Committee, PP&L's Board of Directors decided on January 25, 1995 that Deloitte & Touche LLP would not be retained as the independent auditors for 1995. On February 22, 1995, PP&L's Board of Directors, based upon a recommendation of PP&L's Audit Committee, appointed Price Waterhouse LLP as PP&L's new independent auditors. The auditors' report of Deloitte & Touche LLP on PP&L's financial statements for each of the two years ended December 31, 1993 and 1994, did not contain any adverse opinion or disclaimer of opinion, nor were the reports modified or qualified in any manner. During the period of such two years and the period from December 31, 1994 through January 25, 1995, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. During such periods, there were no "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K. Deloitte & Touche LLP provided a letter to PP&L regarding this matter, dated February 1, 1995, indicating that they agreed with the statements in the two preceding paragraphs. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PP&L RESOURCES, INC. AND PENNSYLVANIA POWER & LIGHT COMPANY PP&L Resources is the parent holding company of PP&L, PMDC and Spectrum. PP&L Resources' principal subsidiary, PP&L, is an operating public utility providing electric service in central eastern Pennsylvania. PMDC was formed to engage in unregulated business activities through investments in electric energy projects. Spectrum, another unregulated subsidiary, was formed to pursue opportunities to offer energy-related products and services to PP&L's existing customers and to others beyond PP&L's service territory. The financial condition and results of operations of PP&L are currently the principal factors affecting the financial condition and results of operations of PP&L Resources. All fluctuations, unless specifically noted, are primarily due to activities of PP&L. All nonutility operating transactions are included in "Other Income and Deductions - Net" on the Consolidated Statement of Income. Terms and abbreviations appearing in the Review of the Financial Condition and Results of Operations are explained in the glossary. Results of Operations Earnings Earnings per share of common stock were $2.05 in 1996, $2.05 in 1995 and $1.41 in 1994. The following table highlights the major items that impacted earnings for each of the years: 1996 1995 1994 Earnings per share - excluding workforce reductions and one- time adjustments $2.05 $1.79 $2.02 Workforce reduction programs: Voluntary early retirement program 0.24 (0.28) Other (0.03) (0.11) 0.03 One-time adjustments: Research and experimentation income tax credits 0.03 Postretirement benefits other than pensions 0.10 (0.04) Disallowance - Susquehanna Unit No. 1 deferred costs (0.13) ECR purchased power costs 0.04 (0.06) Gain/(loss) on subsidiary coal reserves 0.12 (0.26) Earnings per share - reported $2.05 $2.05 $1.41 Earnings per share, excluding the adjustments identified above, improved by $.26 for 1996. This earnings improvement reflects higher revenues resulting from the 3.8% base rate increase from the PUC Decision, as well as higher sales to all service-area classes. On a weather-adjusted basis, sales to commercial customers grew by 3.6%, with sales to residential and industrial customers posting increases of 3.2% and 1.7%, respectively. Earnings also benefited from lower interest expense, due to the refinancing of long-term debt with lower cost securities. These earnings gains were partially offset by a reduction in contractual bulk power sales to JCP&L, as well as higher depreciation expense. The higher depreciation is due to new property, plant and equipment placed in service in 1996, as well as higher depreciation for the Susquehanna station as a result of the PUC Decision. The decline in earnings in 1995, excluding the adjustments identified above, was primarily due to higher operating costs, depreciation for the Susquehanna station and costs associated with the review of PECO's proposals to acquire PP&L Resources. 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. In addition, legislation recently enacted in Pennsylvania to restructure its electric utility industry to create retail access to a competitive market for generation of electricity could have a major impact on the future financial performance of PP&L. See "Pennsylvania Restructuring Legislation" for additional information. Electric Energy Sales The increases (decreases) in PP&L's electric energy sales were attributable to the following: 1996 1995 vs vs 1995 1994 (Millions of KWH) Electric energy sales Residential 548 (144) Commercial 341 232 Industrial 171 309 Other (including UGI) 60 (40) System sales 1,120 357 Sales to other utilities 3,843 1,368 PJM energy sales (1,020) (800) 3,943 925 System, or service area, sales increased 1.1 billion kwh, or 3.4%, over 1995. Part of this increase was attributable to colder weather in the first quarter of 1996. If normal weather had been experienced in both 1996 and 1995, system sales for 1996 would have increased by about 953 million kwh, or 2.9%, over 1995. Actual sales to residential customers in 1996 increased 548 million kwh, or 4.8%, from 1995, compared with a decrease in 1995 of 144 million kwh, or 1.3%, from 1994. Under normal weather conditions, the 1996 increase would have been 3.2%. Weather-adjusted commercial sales increased 3.6% in 1996, and sales to industrial customers increased by 1.7% from 1995. Commercial and industrial sales are good indicators of the region's economic health. Sales to other utilities increased 3.8 billion kwh, or 50.1%, from 1995, despite a reduction in PP&L's contractual bulk power sales to JCP&L. These increases were primarily the result of PP&L's one-year contract to supply energy to PSE&G and increased efforts to sell energy and capacity on the open market. Sales to other utilities in 1995 increased by 1.4 billion kwh, or 21.7% from 1994. These increases were primarily due to PP&L's efforts to increase direct two-party sales to other utilities rather than selling to PJM. Sales to PJM in 1996 decreased by 1 billion kwh, or 43.3%, from 1995. These lower PJM sales were primarily the result of increases in direct sales to other utilities, such as the contract sales to PSE&G referenced above. Sales to PJM in 1995 decreased by 800 million kwh, or 25.3% from 1994. These decreases were also primarily due to PP&L's efforts to increase direct two-party sales. See "Operating Revenues" for more information. Operating Revenues The increases in total operating revenues were attributable to the following: 1996 1995 vs vs 1995 1994 (Millions of Dollars) Base rate revenues: Rate increase - PUC Decision $ 76 $17 Sales volume/mix 57 25 Weather 13 (10) Energy revenue 5 4 Sales to other utilities & PJM 27 (5) Other, net (20) (4) $158 $27 Operating revenues increased by $158 million, or 5.8%, in 1996 over 1995. Base rate revenues were enhanced by the PUC Decision, which increased PUC jurisdictional rates about 3.8% and by strong sales growth in all customer classes. In addition, weather had a favorable impact when comparing 1996 to 1995. This is a result of the extremely cold weather during the first quarter of 1996 compared to milder weather during the first quarter of 1995. Finally, revenues during 1996 reflect increased sales to other utilities, primarily due to the one-year contract to supply energy to PSE&G. These increases were partially offset by the loss of revenue due to the phasing-out of the capacity sales agreement with JCP&L. Operating revenues increased $27 million, or 1%, in 1995 over 1994. Base rate revenues in 1995 were enhanced for three months as a result of the PUC Decision and by higher sales in the commercial and industrial sectors. These revenues were partially offset by unfavorable weather variances caused by the mild weather in early 1995 compared to the extremely cold weather in early 1994. PP&L's generation sales tariff was amended effective January 1, 1997, subject to FERC approval, to allow PP&L to buy energy for the purpose of resale in competitive wholesale markets. This change provides PP&L additional flexibility in creating wholesale power supply opportunities that will increase operating revenues. Pennsylvania Restructuring Legislation In December 1996, Pennsylvania enacted legislation to restructure its electric utility industry in order to create retail access to a competitive market for the generation of electricity. The legislation, which was effective on January 1, 1997, includes the following major provisions: 1. All electric utilities in Pennsylvania are required to file, beginning on April 1, 1997 and in no event later than September 30, 1997, a restructuring plan to implement direct access to a competitive market for electric generation. The plan must include unbundled rates for generation, jurisdictional transmission, distribution and other services; a proposed competitive transition charge; a proposed universal service and energy conservation cost recovery mechanism; procedures for ensuring direct access to all licensed energy suppliers; a discussion of the proposed plan's impacts on utility employees and revised tariffs and rates implementing the foregoing. 2. Retail customer choice will be phased in as follows: up to 33% of all customer load on January 1, 1999; up to 66% of all customer load on January 1, 2000; and 100% of all customer load by January 1, 2001. The PUC can delay this schedule by two 6-month periods, if necessary. 3. Electric distribution companies will be the suppliers of last resort. The PUC will ensure that adequate generation reserves exist to maintain reliable electric service. The utility's transmission and distribution system must continue to meet established national industry standards for installation, maintenance and safety. 4. Retail rates will be capped for at least 4-1/2 years for transmission and distribution charges and for as long as 9 years for generation charges. A utility may be exempted from the caps only under very specific circumstances, e.g., the need for extraordinary rate relief, non-utility generation contracts, changes in laws or regulations, required upgrades or repairs to the transmission system, increases in fuel prices or purchased power prices, nuclear power plant decommissioning costs or taxes. 5. Pennsylvania utilities are permitted to recover PUC-approved transition or stranded costs over several years; however, the utilities are required to mitigate these costs to the extent practicable. Also, the recovery of these costs must not result in cost shifting among customers. 6. "Transition bonds" may be issued to pay the stranded costs. This procedure involves the following elements: (i) the sale or transfer by the utility of the right to recover a portion of its stranded costs to a financing entity -- for a lump-sum payment of cash -- that could be used to retire the utility's debt and equity and to pay stranded costs; (ii) the issuance by the financing entity of "transition bonds"; (iii) the collection by the utility of "transition charges" on customers' bills, which are transferred to the financing entity to pay the principal and interest and other related costs of issuing the transition bonds; (iv) upon the imposition of transition charges on customers' bills, the utility must reduce customer rates by an amount equal to the revenue requirements of the stranded costs financed with transition bonds; and (v) a PUC "qualified rate order," which would be irrevocable, approving the collection of the transition charges. This irrevocability would protect the cash flow stream used to repay the transition bonds. 7. All generation suppliers must demonstrate financial and technical fitness and must be licensed by the PUC. Cooperatives and municipalities may participate in retail competition but are not subject to the provisions of the legislation, unless they elect to serve customers outside their franchise territories. 8. State tax revenues paid by utilities and generation suppliers are to remain at their current level, to protect against any state revenue loss from restructuring. 9. The PUC will monitor electricity markets for anti-competitive or discriminatory conduct, and will consider the impact of mergers and acquisitions on these markets. PP&L is formulating its restructuring plan, which it currently plans to file on April 1, 1997. Under the legislation, the PUC must take action on the restructuring plan within nine months of the filing date. PP&L is unable to predict the ultimate effect of this legislation on its financial position, results of operation or its need to issue securities to meet future capital requirements. Rate Matters Base Rate Filing with the PUC In September 1995, the PUC issued a final order with respect to the base rate case filed by PP&L in December 1994. The PUC Decision increased PUC jurisdictional rates by about $85 million annually, or 3.8%. The PUC Decision permitted the levelization of depreciation expense for the Susquehanna station, recovery of retiree health care costs and costs of the 1994 voluntary early retirement program and revised costs to decommission Susquehanna SES. The order also permitted recovery of deferred operating and capital costs, net of energy savings, for Susquehanna Unit 2 but disallowed similar costs for Unit No. 1. The PUC also ruled that PP&L could not include in the ECR the cost of capacity billed to other utilities after the contractual arrangements with these utilities expire. The OCA has appealed certain aspects of the PUC Decision to the Commonwealth Court. PP&L cannot predict the final outcome in this matter. Energy Cost Rate Issues Through December 1996, PP&L's PUC tariffs contained an ECR under which customers were billed an estimated amount for fuel and other energy costs. Any difference between the actual and estimated amount for such costs was collected from, or refunded to, customers in a subsequent period. In December 1996, the PUC issued a tentative order permitting the roll-in of PP&L's ECR into base rates. The order also authorized PP&L to defer certain unrecovered energy costs as regulatory assets and seek recovery for these costs in the competitive transition charge described above under "Pennsylvania Restructuring Legislation." In 1994, the PUC reduced PP&L's ECR claim by $16 million for costs associated with replacement power during a Susquehanna Unit 1 outage for refueling and repairs. PP&L's appeal of that reduction was settled in 1995, and as a result PP&L recorded a net credit to income of $10 million. Special Base Rate Credit Adjustment Beginning in April 1991, PP&L's PUC tariff included a SBRCA rider which provided for credits to retail customers' bills for three nonrecurring items. They were (i) the use of an inventory method of accounting for certain power plant spare parts (this credit expired as of April 1, 1996); (ii) the sale of capacity and related energy from PP&L's wholly owned coal-fired stations to Atlantic (this credit was rolled into retail base rates at Docket No. R-00943271 and was removed from the SBRCA effective in September 1995); and (iii) the proceeds from a settlement of outstanding contract claims arising from construction of the Susquehanna station (this credit is due to expire in the second quarter of 1997). State Tax Adjustment Surcharge Through December 1996, PP&L's PUC tariffs included a rate mechanism to adjust customer bills for changes in certain state taxes. The STAS had no effect on net income. In December 1996, the PUC issued a tentative order permitting the roll-in of STAS into base rates. FERC-Major Utilities' Rates In August 1995, JCP&L filed a complaint against PP&L with the FERC regarding billings under the bulk power sales agreement between the parties. In its complaint, JCP&L alleges that PP&L inappropriately allocated certain costs to JCP&L that should not have been billed and seeks other adjustments. JCP&L is seeking both refunds (with interest) in an unspecified amount and an amendment to the agreement. PP&L has denied JCP&L's allegations and requested that FERC dismiss the complaint. PP&L cannot predict the final outcome of this proceeding. In October 1995, FERC allowed PP&L to begin charging, subject to refund, four major electric utility customers of PP&L (Atlantic, BG&E, JCP&L and UGI) for certain PP&L costs for post-retirement benefits other than pensions. In that same proceeding, FERC opened to review all other charges by PP&L under its contracts with those customers. JCP&L raised a number of objections to PP&L's charges. In November 1996, an Administrative Law Judge ruled in PP&L's favor on all issues. The case currently is pending before the FERC. 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 these same four major utilities. PP&L also sought to increase the charges to those customers for nuclear decommissioning costs. This case was settled in principle with the four customers in January 1997, under terms which would have no material effect on PP&L. Formal settlement documents are expected to be filed with the FERC by March 1997. See Note 4 for more information regarding these contracts. Power Purchases Power purchases in 1996 increased $61 million from 1995 and remained essentially unchanged in 1995 from 1994. The increase in 1996 was primarily due to greater quantities of power purchased from PJM and other utilities, increased customer demand, planned and unplanned outages of PP&L generating stations, and attractive market prices for energy. Income Taxes Income tax expense for 1996 decreased $33 million, or 11.3%, from 1995. This was primarily due to a decrease in pre-tax book income of $25 million, and the recording of the tax benefits of research and experimental tax credits and deductions of $5 million. Income tax expense in 1995 increased $106 million, or 59%, from 1994. This increase was primarily due to a higher pre-tax book income of $212 million, one-time charges for expensing deferred tax benefits of $12 million as a result of the PUC Decision and recognizing deferred tax liabilities of $4 million relative to undeveloped coal reserves. Partially offsetting these increases was an $8 million decrease resulting from the reduction of the Pa. CNI rate from 11.99% for 1994 to 9.99% for 1995. Other Operation, Maintenance and Depreciation Other operation expenses increased $40 million in 1996 and $29 million in 1995. However, other operation expenses were impacted by the PUC Decision, which prescribed the treatment of postretirement benefit costs, the amortization of VERP expenses and other issues. After eliminating the effects of these rate case issues from both years, other operation expenses decreased by $6 million in 1996, versus an increase of $54 million in 1995. The $6 million decrease in 1996 reflects a $24 million decline in workforce reduction expenses and a $5 million decrease in the provision for uncollectible customer accounts. These decreases were partially offset by a 1996 accrual of $9 million for licensing and design basis projects committed for the Susquehanna station, an $8 million increase in pension and medical expenses, and a net increase of $6 million relating to higher lease expenses and outside litigation costs. The $54 million increase in 1995 was primarily due to $31 million for PP&L's workforce reductions, an $18 million increase in computer support designed to enhance productivity, an $8 million increase in the provision for uncollectible accounts, and $6 million of higher leasing costs. These increases were partially offset by a $17 million decline in postretirement benefits costs in 1995 versus 1994. The 1994 postretirement benefits costs included the write-off of FAS 106 costs, based on the May 1994 Commonwealth Court decision that reversed a previous PUC order permitting the deferral of these costs. Maintenance expenses increased $5 million in 1996 and $6 million in 1995. The 1996 maintenance expenses were $21 million less than in 1995 due to the expiration of a credit to income for a change in inventory practices. See "Rate Matters" for a discussion of the SBRCA. In addition, 1996 contracted maintenance costs were about $10 million higher at the fossil generating stations due to unplanned outages. These items were partially offset by a $19 million charge recorded in 1995 for obsolete and excess inventory at PP&L's generating stations, and a $5 million decrease in the amortization of deferred refueling and inspection outage costs at the Susquehanna station. The $6 million increase in 1995 resulted from the $19 million charge for obsolete and excess inventory, offset by $13 million in lower maintenance costs reflecting continued efforts to reduce costs and achieve longer operating cycles at PP&L's generating stations. Depreciation expense increased $14 million in 1996 and $34 million in 1995. These increases resulted from new property, plant and equipment placed in service, as well as higher depreciation expense for the Susquehanna station. The PUC Decision provided for an increase in Susquehanna depreciation applicable to property placed in service prior to January 1, 1989. The order provided for the Susquehanna property to be depreciated at an annual level of $173 million from October 1, 1995 to December 31, 1998, after which depreciation is scheduled to decline by $71 million annually. Voluntary Early Retirement Program As part of its continuing efforts to reduce costs, PP&L offered a VERP to 851 employees who were age 55 or older by December 31, 1994. A total of 640 employees elected to retire under the program, at a total cost of $76 million. The VERP provided for a lump sum payment based on an employee's years of service, no reduction in retirement benefits for age, and supplemental monthly payments. PP&L recorded the cost of this program as a charge against income in the fourth quarter of 1994, which reduced net income by $43 million, or 28 cents per share of common stock. As a result of the PUC Decision, PP&L was allowed to recover through customer rates the PUC-jurisdictional amount, $66 million, of the cost of its VERP over a period of five years. Consequently, PP&L recorded a $38 million after-tax credit to income, or 24 cents per share of common stock, in the third quarter of 1995 to reverse the PUC-jurisdictional portion of the charge for this program that was recorded in the fourth quarter of 1994. The estimated annual savings of $35 million from this program also are included in rates. Other Income and (Deductions) - Net Other income and deductions improved in 1996 due to the equity earnings from PMDC's investment in SWEB, as well as gains on the sale of investment securities by PP&L. Other income and deductions in 1995 reflected a gain on the sale of a PP&L subsidiary's undeveloped coal reserves, offset by the write-off of Susquehanna Unit 1 deferred operating expenses and carrying costs (net of energy savings) resulting from the PUC Decision, and by expenses associated with evaluating and responding to PECO's unsolicited proposals to acquire PP&L Resources. Other income and deductions in 1994 were adversely impacted by the writedown of the undeveloped coal reserves which were sold in 1995. Financing Costs In 1996, PP&L Resources continued to take advantage of opportunities to reduce its financing costs by retiring long-term debt with the proceeds from the sale of securities at a lower cost and the issuance of common stock through its DRIP. Interest on long-term debt and dividends on preferred stock decreased from $260 million in 1993 to $235 million in 1996, for a total decrease of $25 million. Financial Condition Capital Expenditure Requirements The schedule below shows PP&L's current capital expenditure projections for the years 1997-2001 and actual spending for the year 1996. PP&L's Capital Expenditure Requirements (a) Actual -------------Projected---------------- 1996 1997 1998 1999 2000 2001 (Millions of Dollars) Construction expenditures Generating facilities $ 86 $ 65 $ 81 $ 53 $ 76 $ 68 Transmission and distribution facilities 124 120 126 123 147 142 Environmental 16 16 21 34 3 3 Other 39 57 44 20 17 17 Total Construction Expenditures 265 258 272 230 243 230 Nuclear fuel owned and leased 98 68 71 67 71 73 Other leased property 19 24 22 22 22 22 Total Capital Expen- ditures $382 $350 $365 $319 $336 $325 (a) Construction expenditures include AFUDC which is expected to be less than $10 million in each of the years 1997-2001. PP&L's capital expenditure projections for the years 1997-2001 total about $1.7 billion. Capital expenditure plans are revised from time to time to reflect changes in conditions. Financing and Liquidity Net cash provided by operating activities for 1996 increased $101 million over 1995. This increase is primarily due to higher operating revenues, which reflects the 3.8% base rate increase from the PUC Decision as well as higher sales to all customer classes. Lower interest expense also contributed to the increase. These increases were partially offset by higher fuel inventories. Net cash provided by operating activities between 1995 and 1994 was essentially unchanged. Net cash used in investing activities was $119 million higher in 1996 than 1995. This increase was primarily due to PMDC's increased investments in electric energy projects, partially offset by lower construction expenditures by PP&L. Net cash used in investing activities was $184 million lower in 1995 than 1994. This decrease was due primarily to lower construction expenditures by PP&L and the proceeds from the sale of coal reserves. In 1996, PP&L sold $116 million of unsecured notes while PP&L Resources issued $77 million of common stock of which $70 million was issued through its DRIP and the remaining $7 million issued to PP&L's ESOP. During the year, PP&L retired $145 million of long-term debt. For the years 1994-1996, PP&L issued $1.1 billion of long-term debt and $80 million of preferred stock. For the same period, PP&L and PP&L Resources issued a total of $228 million of common stock. Proceeds from security sales were used to retire $923 million of long-term debt and $120 million of preferred stock to lower PP&L's financing costs, reduce short-term debt and finance construction expenditures. During the years 1994-1996, PP&L also incurred $249 million of obligations under capital leases (primarily nuclear fuel). PP&L Resources established a revolving credit facility in the second quarter of 1996 in the amount of $300 million. PP&L Resources used $190 million of borrowings under this revolving credit facility to fund a PMDC subsidiary's acquisition of a 25 percent interest in SWEB. Borrowings of $135 million were outstanding under this credit facility at December 31, 1996. See Note 9 for further information. To enhance financing flexibility, PP&L maintains a $250 million revolving credit arrangement with a group of banks, which is used principally as a back-up for PP&L's commercial paper. In addition, $45 million in credit arrangements are maintained with a group of banks to provide back-up for PP&L's commercial paper and short-term borrowings of certain of its subsidiaries. No borrowings were outstanding at December 31, 1996 under these arrangements. See Financial Note 9 for further information. In January 1997, PP&L requested FERC authorization to issue, from time to time, up to $750 million of short-term debt to provide funding for working capital requirements, the maturity of long- term debt, the early retirement of long-term debt and the refinancing of other securities. PP&L plans to redeem four series of its first mortgage bonds on April 1, 1997. Three of the series of first mortgage bonds, which have a total principal amount of $180 million, will be redeemed under the maintenance and replacement fund provisions of these bonds. The fourth series, having a principal amount of $30 million, will be redeemed under the optional redemption provisions of these bonds. The redemption of these series of bonds is part of PP&L's plan to reduce its overall cost of financing. PP&L has registered with the SEC to issue Junior Subordinated Deferrable Interest Debentures to support a $100 million public offering of Trust Originated Preferred Securities. The proceeds of this issuance will be used for general corporate purposes, including the refinancing of outstanding securities. The funds required by PP&L Resources during 1997 to retire the borrowings outstanding under its revolving credit facility (described above), to permit PMDC to complete the acquisition of a 25.05 percent interest in Emel and for investment in other PMDC projects (see "Unregulated Investments") are expected to be provided through the issuance of about $170 million of debt pursuant to a medium-term note program that PP&L Resources plans to put in place in the second quarter of 1997 and the issuance of about $70 million of common stock under the DRIP. The liquidation of temporary cash investments of about $57 million is expected to provide the balance of the funds necessary for PMDC investments during 1997. It is currently expected that the DRIP will be continued after 1997 as necessary to provide equity funding for PMDC investments, and that PP&L's ESOP will provide proceeds of about $8 million in each of the years 1997 through 2001. Financial Indicators PP&L Resources earned a 12.30% return on average common equity during 1996, a decrease from the 12.81% earned in 1995. Excluding one- time adjustments, as described in "Earnings", the return on average common equity was 12.11% during 1996, an increase from the 11.96% earned in 1995. The ratio of PP&L Resources' pre-tax income to interest charges was 3.55 for 1996, virtually unchanged from 1995. Excluding one-time adjustments, the ratio of PP&L Resources' pre-tax income to interest charges was 3.53 in 1996, an increase from the 3.48 in 1995. The annual per share dividend rate on common stock remained unchanged at $1.67 per share. The book value per share of common stock increased 3.6% from $16.29 at the end of 1995 to $16.87 at the end of 1996. The ratio of the market price to book value of common stock was 136% at the end of 1996 compared with 153% at the end of 1995. 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 equipment on its wholly-owned units. PP&L has met the initial ambient ozone requirements identified in Title I of the Clean Air Act by reducing nitrogen oxide emissions by 40% through the use of low nitrogen oxide burners. Further seasonal (i.e., 5 month) nitrogen oxide reductions to 55% and 75% of pre-Clean Air Act levels for 1999 and 2003, respectively, are specified under the Northeast Ozone Transport Region's Memorandum of Understanding. The Clean Air Act requires EPA to study the health effects of hazardous air emissions from power plants and other sources. In this regard, in November 1996 the EPA proposed new national standards for ambient levels of ground-level ozone and fine particulates. The new standards, if implemented, may result in EPA mandating additional NOx and SO2 reductions from utility boilers in the 2005-2010 timeframe. NOx reductions to meet the new ozone standard are likely to be in the range of the 75% seasonal NOx reductions that already are required for PP&L under the Memorandum of Understanding in 2003 and beyond. However, to meet the new fine particulate standards, EPA may mandate additional SO2 reductions significantly greater than those now planned for the acid rain program and extend the NOx reductions required by the Memorandum of Understanding from seasonal to year-round. Expenditures to meet the year 1999 Memorandum of Understanding requirements are included in the table of projected construction expenditures in the section "Financial Condition - Capital Expenditure Requirements". PP&L currently estimates that additional capital expenditures and operating costs for environmental compliance under the Clean Air Act will be incurred beyond 2001 in amounts which are not now determinable but could be material. Water and Residual Waste DEP residual waste regulations require PP&L to obtain permits for existing ash basins at all of its coal-fired generating stations as disposal facilities. Ash basins that cannot be permitted are required to close by July 1997. Any groundwater contamination caused by the basins must also be addressed. Any new ash disposal facility must meet the rigid siting and design standards set forth in the regulations. To address the DEP regulations, PP&L is moving forward with plans to install dry fly ash handling systems at its power stations. Groundwater degradation related to fuel oil leakage from underground facilities and seepage from coal refuse disposal areas and coal storage piles has been identified at several PP&L generating stations. Remedial work is substantially completed at two generating stations. At this time, there is no indication that remedial work will be required at other PP&L generating stations. The current Montour station NPDES permit and proposed Holtwood station NPDES permit contain stringent limits for certain toxic metals and increased monitoring requirements. Depending on the results of toxic reduction studies in progress, additional water treatment facilities may be needed at these stations. 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 section "Financial Condition - Capital Expenditure Requirements". PP&L currently estimates that $12 million of additional capital expenditures may be required in the next four years and $67 million of additional capital expenditures could be required beyond the year 2001. Actions taken to correct groundwater degradation, to comply with the DEP's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but could be material. Superfund and Other Remediation PP&L has signed a consent order with the DEP to address a number of sites where PP&L may be liable for remediation of contamination. This may include potential PCB contamination at certain PP&L substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PP&L; and oil or other contamination which may exist at some of PP&L's former generating facilities. At December 31, 1996, PP&L had accrued $10 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 may be material. 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 "Pennsylvania Restructuring Legislation" for a discussion of the recent Pennsylvania restructuring legislation and PP&L's planned PUC filings pursuant to that legislation. In response to a July 1996 PUC Report on achieving retail competition in Pennsylvania, PP&L in October 1996 became the first Pennsylvania utility to file for PUC approval of a retail pilot program. Under this program, approximately 54,000 PP&L residential, commercial, and industrial customers -- representing approximately 5% of PP&L's average peak load -- will have an opportunity to purchase energy from alternative suppliers. In January 1997, the PUC issued final guidelines for retail access pilot programs. Those guidelines require each major electric utility in Pennsylvania to file a proposed pilot program in accordance with the guidelines by March 1, 1997. PP&L is currently evaluating the impact of the guidelines on its proposed pilot program and will respond, as appropriate, by March 1, 1997. Under its proposed pilot program, PP&L initially will provide all back-up services and customer service. Other utilities may participate in PP&L's program as suppliers if they offer this same opportunity for PP&L to participate in their programs. 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 tariffs must offer point-to- point and network services, as well as ancillary services. A utility must offer these services to all eligible wholesale customers on a basis comparable to the services the utility provides to itself. A utility must take service under its open access transmission tariff for its own wholesale sales and purchases. The rules do not abrogate existing transmission agreements. The rules also provide that utilities are entitled to recover from their wholesale customers all "legitimate, verifiable, prudently incurred stranded costs." The FERC has provided recovery mechanisms for wholesale stranded costs, including stranded costs resulting from municipalization. Wholesale contracts signed after July 11, 1994 must contain explicit provisions addressing recovery of stranded costs. For contracts signed before this date, a utility may seek recovery if it can show that it had a reasonable expectation of continuing to serve the customer after the contract term. Finally, the rules require that a power pool-wide open access transmission tariff and modified bilateral coordination agreements reflecting the removal of discriminatory provisions be filed by December 31, 1996 and implemented by March 1, 1997. In addition, utilities must separate their transmission and power marketing functions, and they must implement an electronic bulletin board for transmission capacity information by January 3, 1997. Under the new rules, 16 small utilities which have contracts with PP&L signed before July 11, 1994, requested and were provided with PP&L's current estimate of its stranded costs applicable to these customers if they were to terminate their contracts in 1999. Based upon a formula set forth in FERC Order 888 and applicable only to wholesale customers, and based upon data unique to the contracts between PP&L and these customers, PP&L estimated that the stranded costs associated with service to these wholesale customers would be approximately $95 million. This estimate was subsequently raised to approximately $125 million. As a result of a protest by these parties against such recovery, the FERC has scheduled hearings in the spring of 1997 regarding PP&L's right to recover these stranded costs. In July 1996, PP&L filed the open access transmission tariff required by FERC Order 888. Under the new FERC rules, that tariff became effective on July 9, 1996, subject to refund. Several parties, including the small utilities, moved to intervene and protested the new rates. These matters may be set for hearing by the FERC. In addition, PP&L has made the required informational filing which showed unbundled generation and transmission components of its billing to existing wholesale customers. The FERC has accepted this filing. In July 1996, all of the PJM companies, except PECO, submitted a comprehensive filing for FERC approval of changes to the PJM to accommodate greater competition and broader participation. The filing would (i) establish pool-wide transmission service tariffs to provide comparable, open-access service for all wholesale transactions throughout PJM; (ii) establish a price-based bidding system, with the resulting regional energy market open to all wholesale buyers and sellers of power; (iii) create a not-for-profit corporate entity in the form of an ISO responsible for impartial daily management and administration of the energy market and the transmission system; and (iv) develop an enhanced pool-wide planning function to be administered by the ISO. In August 1996, PECO filed a separate PJM restructuring proposal with the FERC, which differed significantly in several areas from the other companies' filing. In November 1996, the FERC rejected both proposals for restructuring the PJM for several reasons, the principal one being its view that the ISO was not sufficiently independent. FERC ordered the PJM companies to file a pool-wide tariff and modified coordination agreements reflecting the removal of provisions which FERC considered discriminatory against non-PJM members. In December 1996, all members of PJM submitted an interim 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 PJM companies currently are working with multiple stakeholders to develop a consensus package for the comprehensive restructuring of the PJM, which is expected to be filed with the FERC in May 1997. Unregulated Investments PMDC continues to pursue opportunities to develop and acquire electric generation, transmission and distribution facilities in the United States and abroad. As of December 31, 1996, PMDC had investments and commitments in the amount of approximately $250 million in distribution, transmission and generation facilities in the United Kingdom, Bolivia, Peru, Argentina, Spain and Portugal. The principal investment to date is its July 1, 1996 purchase of a 25 percent interest in SWEB, a British regional electric utility company, for approximately $189 million. In addition, PMDC is negotiating definitive agreements for the purchase of a 25.05 percent interest in Empresas Emel S.A., a Chilean holding company. Emel is the third largest distributor of electricity in Chile, and the second largest in Bolivia. Emel, through its controlling interests in six electric distribution companies, serves a total of 535,000 customers in Chile and Bolivia. Under the terms of the agreements being negotiated, PMDC would purchase existing and new shares of Emel for about $120 million in mid-1997. See Financial Note 14 for additional information on the financing of these investments. PP&L Resources' other unregulated subsidiary, Spectrum, offers energy-related products and services to PP&L's existing customers and to others outside of PP&L's service territory. Other subsidiaries may be formed by PP&L Resources to take advantage of new business opportunities. (Address and phone number appears here) Thirty South Seventeenth Street Philadelphia, PA 19103-4094 Telephone 215 575 5000 (Price Waterhouse LLP logo appears here) Report of Independent Accountants February 3, 1997 To the Shareowners and Board of Directors of PP&L Resources, Inc. and to the Shareowners and Board of Directors of Pennsylvania Power & Light Company In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 8 on page 22, present fairly, in all material respects, the consolidated financial position of PP&L Resources, Inc. and its subsidiaries (PP&L Resources) at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the two years then ended and the consolidated financial position of Pennsylvania Power & Light Company and its subsidiaries (PP&L) at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the two years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management of PP&L Resources and PP&L; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The consolidated financial statements of PP&L for the year ended December 31, 1994, prior to restatement (not presented separately herein), were audited by other independent accountants whose report dated February 3, 1995 expressed an unqualified opinion on those financial statements. Effective April 27, 1995, PP&L Resources, which had been a wholly-owned subsidiary of PP&L, became the parent holding company of PP&L. The accompanying consolidated financial statements reflect this reorganization on a retroactive basis. We have audited the adjustments that were applied to restate the 1994 PP&L consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied to the 1994 PP&L consolidated financial statements. (Signed) Price Waterhouse LLP PRICE WATERHOUSE LLP (Deloitte & Touche LLP Logo appears here) (Address and phone number appear here) Two Hilton Court P.O. Box 319 Parsippany, New Jersey 07054-0319 Telephone: (201) 631-7000 Facsimile: (201) 631-7459 INDEPENDENT AUDITORS' REPORT Pennsylvania Power & Light Company: We have audited the consolidated statements of income, shareowners' common equity, and cash flows of Pennsylvania Power & Light Company and its subsidiaries for the year ended December 31, 1994, prior to restatement and not presented separately herein. Our audit also included the financial statement schedule for the year ended December 31, 1994 listed in the Index at Item 8. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements, prior to restatement and not presented separately herein, present fairly, in all material respects, the results of operations of Pennsylvania Power & Light Company and its subsidiaries and their cash flows for the year ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule for the year ended December 31, 1994, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. (Signed) Deloitte & Touche LLP February 3, 1995 (Deloitte Touche Tohmatsu International logo appears here) PP&L Resources, Inc. Management's Report on Responsibility for Financial Statements The management of PP&L Resources, Inc. is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PP&L Resources. PP&L Resources' consolidated financial statements have been audited by Price Waterhouse LLP (Price Waterhouse), independent certified public accountants, whose report with respect to the financial statements appears on page 41. Price Waterhouse's appointment as auditors was previously ratified by the shareowners. Management has made available to Price Waterhouse all PP&L Resources' financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to Price Waterhouse during its audit were valid and appropriate. PP&L Resources maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control. Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PP&L Resources maintains an internal auditing program to evaluate PP&L Resources' system of internal control for adequacy, application and compliance. Management considers the internal auditors' and Price Waterhouse's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PP&L Resources' system of internal control is adequate to accomplish the objectives discussed in this report. The Board of Directors, acting through its Audit and Corporate Responsibility Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit and Corporate Responsibility Committee, which is composed of five independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. The independent certified public accountants and the internal auditors have free access to the Audit and Corporate Responsibility Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that PP&L Resources' affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the business policies and guidelines of PP&L Resources' operating subsidiaries. These policies and guidelines address: the necessity of ensuring open communication within PP&L Resources; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information. /s/ William F. Hecht William F. Hecht Chairman, President and Chief Executive Officer /s/ R. E. Hill R. E. Hill Senior Vice President - Financial Pennsylvania Power & Light Company Management's Report on Responsibility for Financial Statements The management of Pennsylvania Power & Light Company is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PP&L. PP&L's consolidated financial statements have been audited by Price Waterhouse LLP (Price Waterhouse), independent certified public accountants, whose report with respect to the financial statements appears on page 41. Price Waterhouse's appointment as auditors was previously ratified by the shareowners. Management has made available to Price Waterhouse all PP&L's financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to Price Waterhouse during its audit were valid and appropriate. PP&L maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control. Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PP&L maintains an internal auditing program to evaluate PP&L's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and Price Waterhouse's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PP&L's system of internal control is adequate to accomplish the objectives discussed in this report. The Board of Directors, acting through PP&L Resources' Audit and Corporate Responsibility Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit and Corporate Responsibility Committee, which is composed of five independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. The independent certified public accountants and the internal auditors have free access to PP&L Resources' Audit and Corporate Responsibility Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that PP&L's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in PP&L's business policies and guidelines. These policies and guidelines address: the necessity of ensuring open communication within PP&L; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information. /s/ William F. Hecht William F. Hecht Chairman, President and Chief Executive Officer /s/ R. E. Hill R. E. Hill Senior Vice President - Financial CONSOLIDATED STATEMENT OF INCOME PP&L Resources, Inc. and Subsidiaries (Millions of Dollars, except per share data)
1996 1995 1994 Operating Revenues (Notes 1, 3 and 4)................................. $2,910 $2,752 $2,725 Operating Expenses Operation Fuel..................................................................... 448 451 472 Power purchases.......................................................... 352 291 287 Other.................................................................... 544 504 475 Maintenance................................................................ 191 186 180 Depreciation (including amortized depreciation) (Notes 1 and 8) ................................................................ 363 349 315 Income taxes (Note 5)...................................................... 253 262 218 Taxes, other than income (Note 5).......................................... 203 201 201 Voluntary early retirement program (Note 11) ...................................... (66) 76 2,354 2,178 2,224 Operating Income......................................... 556 574 501 Other Income and (Deductions) - Net 21 2 (30) Income Before Interest Charges and Dividends on Preferred Stock ........................................................... 577 576 471 Interest Charges Long-term debt......................................... 207 213 214 Short-term debt and other.................................................. 13 12 13 220 225 227 Preferred Stock Dividend Requirements........................................ 28 28 28 Net Income............................................... $329 $323 $216 Earnings Per Share of Common Stock (a)................... $2.05 $2.05 $1.41 Average Number of Shares Outstanding (thousands)............................. 161,060 157,649 153,458 Dividends Declared Per Share of Common Stock................................. $1.67 $1.67 $1.67 (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
1996 1995 1994 Cash Flows From Operating Activities Net income............................................ $329 $323 $216 Adjustments to reconcile net income to net cash provided by operating activities Depreciation............................................................. 366 352 317 Amortization of property under capital leases............................ 86 79 86 Amortization of contract settlement proceeds and deferred cost of power plant spare parts............................... (15) (37) (38) Deferred income taxes and investment tax credits........................... 16 (70) Voluntary early retirement program ................................................... (66) 76 Write-down of coal reserves .............................................................. 74 Change in current assets and current liabilities Fuel inventories....................................................... (14) 43 (30) Other.................................................................. (35) (30) (5) Other operating activities -- net........................................ 76 12 85 Net cash provided by operating activities............................ 793 692 711 Cash Flows From Investing Activities Property, plant and equipment expenditures............ (360) (403) (505) Proceeds from sale of nuclear fuel to trust................................ 93 44 36 Proceeds from sale of coal reserves................................................... 52 Purchases of available-for-sale securities ................................ (600) (303) (204) Sales and maturities of available-for-sale securities ..................... 631 301 148 Investment in electric energy projects..................................... (201) (12) Other investing activities -- net.......................................... 5 8 28 Net cash used in investing activities................................ (432) (313) (497) Cash Flows From Financing Activities Issuance of long-term debt............................ 116 55 919 Issuance of common stock................................................... 77 81 70 Issuance of preferred stock.................................................................. 80 Retirement of long-term debt............................................... (145) (140) (638) Retirement of preferred stock .............................................................. (120) Payments on capital lease obligations...................................... (86) (79) (86) Common and preferred dividends paid........................................ (296) (290) (284) Net increase (decrease) in short-term debt................................. 55 15 (128) Other financing activities -- net.......................................... (1) (11) (25) Net cash used in financing activities................................ (280) (369) (212) Net Increase in Cash and Cash Equivalents............................................................. 81 10 2 Cash and Cash Equivalents at Beginning of Period............................. 20 10 8 Cash and Cash Equivalents at End of Period................................... $101 $20 $10 Supplemental Disclosures of Cash Flow Information Cash paid during the year for: Interest (net of amount capitalized)..................................... $213 $218 $200 Income taxes............................................................. $286 $257 $264 See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31 PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
Assets 1996 1995 Property, Plant and Equipment Electric utility plant in service - at original cost........... $9,824 $9,637 Accumulated depreciation (Notes 1 and 8)............................................. (3,337) (3,113) 6,487 6,524 Construction work in progress - at cost ............................................... 172 170 Nuclear fuel owned and leased - net of amortization .................................. 170 134 Other leased property - net of amortization .......................................... 76 85 Electric utility plant - net ........................................................ 6,905 6,913 Other property - (net of depreciation, amortization and depletion 1996, $54; 1995, $56) (Note 13)........................................ 55 57 6,960 6,970 Investments Investment in electric energy projects -- at equity (Note 1) .. 224 12 Affiliated companies - at equity (Note 1).............................................. 17 17 Nuclear plant decommissioning trust fund (Notes 1 and 6)............................... 128 109 Financial investments (Notes 1 and 7) ................................................. 133 142 Other-at cost or less (Note 7) ........................................................ 18 9 520 289 Current Assets Cash and cash equivalents (Note 1) ............................ 101 20 Current financial investments (Notes 1 and 7).......................................... 73 96 Accounts receivable (less reserve: 1996, $25; 1995, $35) Customers ........................................................................... 196 197 Other ............................................................................... 19 14 Unbilled revenues...................................................................... 85 92 Fuel, materials and supplies - at average cost ........................................ 201 190 Deferred income taxes (Note 5)......................................................... 21 42 Other ................................................................................. 53 42 749 693 Regulatory Assets and Other (Note 8).................................................... 1,407 1,540 $9,636 $9,492 See accompanying Notes to Financial Statements.
Liabilities 1996 1995 Capitalization Common equity Common stock ........................................................................ $2 $2 Capital in excess of par value ..................................................... 1,590 1,513 Earnings reinvested.................................................................. 1,143 1,083 Capital stock expense and other ..................................................... 10 (1) 2,745 2,597 Preferred stock With sinking fund requirements ...................................................... 295 295 Without sinking fund requirements ................................................... 171 171 Long-term debt ........................................................................ 2,802 2,829 6,013 5,892 Current Liabilities Commercial paper (Note 9) ..................................... 68 Bank loans (Note 9) ................................................................... 144 21 Long-term debt due within one year .................................................... 30 30 Capital lease obligations due within one year ......................................... 81 81 Accounts payable ...................................................................... 133 128 Taxes accrued ......................................................................... 19 47 Interest accrued ...................................................................... 61 66 Dividends payable ..................................................................... 75 74 Other ................................................................................. 78 86 621 601 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 5) ...................... 209 219 Deferred income taxes (Note 5) ........................................................ 2,052 2,106 Capital lease obligations ............................................................. 166 139 Other (Notes 1, 3, 6, and 10).......................................................... 575 535 3,002 2,999 Commitments and Contingent Liabilities (Note 14) ...................................... $9,636 $9,492 See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
Common Common Stock Capital Capital Stock Outstand- in Excess Earnings Stock Outstanding ing of Par Rein- Expense & Shares (a) Amount Value vested Other Balance at December 31, 1993... 152,132,089 $2 $1,369 $1,066 $(11) Net income.......................................... 216 Cash dividends declared on common stock................................... (257) Stock redemption costs....................... (1) Common stock issued (b) ................ 3,349,873 64 Other.................................................... 7 Balance at December 31, 1994... 155,481,962 $2 $1,433 $1,024 $(4) Net income.......................................... 323 Cash dividends declared on common stock................................... (264) Common stock issued (b) ................ 3,921,304 80 Other.................................................... 3 Balance at December 31, 1995... 159,403,266 $2 $1,513 $1,083 $(1) Net income.......................................... 329 Cash dividends declared on common stock................................... (269) Common stock issued (b) ................ 3,262,150 77 Other.................................................... 11 Balance at December 31, 1996... 162,665,416 $2 $1,590 $1,143 $10 (a) $.01 par value, 390,000,000 shares authorized. Each share entitles the holder to one vote on any question presented to any shareowners' meeting. (b) Common Stock issued through the ESOP and the DRIP.
Consolidated Statement of Preferred Stock at December 31 PP&L Resources, Inc. and Subsidiaries (a) (Millions of Dollars)
Shares Outstand- Outstand- Outstand- ing ing ing Shares 1996 1995 1996 Authorized PP&L Preferred Stock - $100 par, cumulative 4-1/2%.................... $53 $53 530,189 629,936 Series............................................... 413 413 4,133,556 10,000,000 $466 $466 See accompanying Notes to Financial Statements.
Details of Preferred Stock (b)
Optional Sinking Fund Redemption Provisions (c) Shares Price Per Shares to be Outstanding Outstanding Share Redeemed Redemption 1996 1995 1996 1996 Annually Period With Sinking Fund Requirements Series Preferred 5.95% ................... $30 $30 300,000 (d) 300,000 April 2001 6.05%.................... 25 25 250,000 (d) 250,000 April 2002 6.125% .................. 115 115 1,150,000 (d) (e) 2003-2008 6.15%.................... 25 25 250,000 (d) 250,000 April 2003 6.33% ................... 100 100 1,000,000 (d) (f) 2003-2008 $295 $295 Without Sinking Fund Requirements 4-1/2% Preferred........... $53 $53 530,189 $110.00 Series Preferred 3.35%.................... 4 4 41,783 103.50 4.40%.................... 23 23 228,773 102.00 4.60%.................... 6 6 63,000 103.00 6.75%.................... 85 85 850,000 (d) $171 $171
Increases (Decreases) in Preferred Stock
1996 1995 1994 Shares Amount Shares Amount Shares Amount Series Preferred Stock 5.95% ............................. 300,000 $30 6.05% ............................. 250,000 25 6.125% ........................... 6.15% ............................. 250,000 25 6.33% ............................. 6.75% ............................. 6.875% ........................... (400,000) (40) 7.00% ............................. (800,000) (80) Decreases in Preferred Stock represent: (i) the redemption of stock pursuant to sinking fund requirements; or (ii) shares redeemed pursuant to optional redemption provisions. There were no issuances or redemptions of preferred stock in 1996 or 1995. (a) Each share of PP&L's preferred stock entitles the holder to one vote on any question presented to PP&L's shareowners' meetings. There were 10,000,000 shares of Resources' preferred stock and 5,000,000 shares of PP&L's preference stock authorized; none were outstanding at December 31, 1996 and 1995, respectively. (b) The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends). (c) These series of preferred stock are not redeemable prior to the following years: 5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003. (d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 862,500. (e) Shares to be redeemed annually on July 1 as follows: 2003-2007, 50,000; 2008, 750,000. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31 PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
Outstanding 1996 1995 Maturity(b) First Mortgage Bonds (a) 5 5/8% .................................. $30 June 1, 1996 6 3/4% .................................................. $30 30 November 1, 1997 5 1/2%................................................... 150 150 April 1, 1998 7%....................................................... 40 40 January 1, 1999 8 1/8%................................................................... 40 June 1, 1999 6%....................................................... 125 125 June 1, 2000 7 1/4% .................................................. 60 60 February 1, 2001 6.5% to 7 3/4%........................................... 755 830 2002-2006 7.70%.................................................... 200 200 2007-2011 (c) 7 3/8%................................................... 100 100 2012-2016 9 1/4% to 9 3/8% ........................................ 315 315 2017-2021 6 3/4% to 8 1/2% ........................................ 650 650 2022-2026 First Mortgage Pollution Control Bonds (a) 6.40% Series H........................... 90 90 November 1, 2021 5.50% Series I........................................... 53 53 February 15, 2027 6.40% Series J........................................... 116 116 September 1, 2029 6.15% Series K........................................... 55 55 August 1, 2029 2,739 2,884 Unsecured promissory notes ................................ 116 (d) 2,855 2,884 Unamortized (discount) and premium -- net ................. (23) (25) 2,832 2,859 Less amount due within one year............................ 30 30 Total long-term debt .................................... $2,802 $2,829 __________________________________________ (a) Substantially all owned electric utility plant is subject to the lien of PP&L's first mortgage. (b) Aggregate long-term debt maturities through 2001 are (millions of dollars): 1997, $30; 1998, $150; 1999, $40; 2000, $125; 2001, $60. Maximum sinking fund requirements aggregate $5.6 million through 2001 and may be met with property additions or retirement of bonds. The annual sinking fund requirements through 2001 will not exceed $1.8 million. (c) Any registered owner of these bonds has the right to require PP&L to redeem such owner's bonds on October 1, 1999 at a price of 100% of the principal amount. (d) In 1996, PP&L issued $116 million of unsecured promissory notes due in March 2001. The proceeds were used to redeem $40 million of First Mortgage Bonds, 8-1/8% Series due 1999, and $75 million of First Mortgage Bonds, 7-5/8% Series due 2002. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF INCOME Pennsylvania Power & Light Company and Subsidiaries (Millions of Dollars)
1996 1995 1994 Operating Revenues (Notes 1, 3 and 4)............................. $2,910 $2,752 $2,725 Operating Expenses Operation Fuel.......................................................... 448 451 472 Power purchases............................................... 352 291 287 Other......................................................... 544 504 475 Maintenance..................................................... 191 186 180 Depreciation (including amortized depreciation) (Notes 1 and 8) .............................................. 363 349 315 Income taxes (Note 5)........................................... 253 262 218 Taxes, other than income (Note 5)............................... 203 201 201 Voluntary early retirement program (Note 11) ...................... (66) 76 2,354 2,178 2,224 Operating Income.................................................. 556 574 501 Other Income and (Deductions) - Net 15 4 (31) Income Before Interest Charges.................................... 571 578 470 Interest Charges Long-term debt................................ 207 213 214 Short-term debt and other....................................... 7 13 13 214 226 227 Net Income........................................................ 357 352 243 Dividends on Preferred Stock...................................... 28 28 28 Earnings Available to PP&L Resources, Inc. .................... $329 $324 $215 See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS Pennsylvania Power & Light Company and Subsidiaries (Millions of Dollars)
1996 1995 1994 Cash Flows From Operating Activities Net income............................................ $357 $352 $243 Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................................... 366 352 317 Amortization of property under capital leases.......................... 86 79 86 Amortization of contract settlement proceeds and deferred cost of power plant spare parts............................. (15) (37) (38) Deferred income taxes and investment tax credits....................... (1) 16 (70) Voluntary early retirement program ................................................. (66) 76 Write down of coal reserves .............................................................. 74 Change in current assets and current liabilities Fuel inventories..................................................... (14) 43 (30) Other................................................................ (38) (28) (4) Other operating activities -- net...................................... 58 (15) 56 Net cash provided by operating activities.......................... 799 696 710 Cash Flows From Investing Activities Property, plant and equipment expenditures............ (360) (403) (505) Proceeds from sales of nuclear fuel to trust............................. 93 44 36 Proceeds from sale of coal reserves................................................... 52 Purchases of available-for-sale securities .............................. (90) (81) (95) Sales and maturities of available-for-sale securities ................... 93 80 90 Other investing activities -- net........................................ 5 7 27 Net cash used in investing activities.............................. (259) (301) (447) Cash Flows From Financing Activities Issuance of long-term debt............................ 116 55 919 Issuance of common stock and capital contribution from parent............................................... 32 60 70 Issuance of preferred stock.................................................................. 80 Retirement of long-term debt............................................. (145) (140) (638) Retirement of preferred stock............................................................... (120) Payments on capital lease obligations.................................... (86) (79) (86) Common and preferred dividends paid...................................... (296) (290) (284) Dividends for capitalization of PMDC .................................................. (50) Net increase (decrease) in short-term debt............................... (79) 15 (128) Other financing activities -- net........................................ (2) (10) (25) Net cash used in financing activities.............................. (460) (389) (262) Net Increase in Cash and Cash Equivalents........................................................... 80 6 1 Cash and Cash Equivalents at Beginning of Period........................... 15 9 8 Cash and Cash Equivalents at End of Period................................. $95 $15 $9 Supplemental Disclosures of Cash Flow Information Cash paid during the year for Interest (net of amount capitalized)................................... $208 $218 $200 Income taxes........................................................... $289 $258 $264 See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31 Pennsylvania Power & Light Company and Subsidiaries (Millions of Dollars)
Assets 1996 1995 Property, Plant and Equipment Electric utility plant in service - at original cost...... $9,824 $9,637 Accumulated depreciation (Notes 1 and 8)..................................... (3,337) (3,113) 6,487 6,524 Construction work in progress - at cost ....................................... 172 170 Nuclear fuel owned and leased - net of amortization ........................... 170 134 Other leased property - net of amortization ................................... 76 85 Electric utility plant - net ................................................. 6,905 6,913 Other property - net of depreciation, amortization and depletion (1996, $54; 1995, $56) (Note 13)............................... 55 57 6,960 6,970 Investments Affiliated companies - at equity (Note 1) ................ 17 17 Nuclear plant decommissioning trust fund (Notes 1 and 6)....................... 128 110 Financial investments (Notes 1 and 7) ......................................... 133 132 Other - at cost or less (Note 7) .............................................. 10 9 288 268 Current Assets Cash and cash equivalents (Note 1) ....................... 95 15 Marketable securities (Notes 1 and 7).......................................... 51 55 Accounts receivable (less reserve: 1996, $25; 1995, $35) Customers ................................................................... 196 197 Other ....................................................................... 14 13 Unbilled revenues.............................................................. 85 92 Fuel, material and supplies - at average cost ................................. 201 190 Deferred income taxes (Note 5)................................................. 21 42 Other ......................................................................... 53 42 716 646 Regulatory Assets and Other (Note 8)............................................. 1,407 1,540 $9,371 $9,424 See accompanying Notes to Financial Statements.
Liabilities 1996 1995 Capitalization Common equity Common stock ................................................................ $1,476 $1,476 Additional paid-in capital .................................................. 57 25 Earnings reinvested ......................................................... 1,094 1,034 Capital stock expense and other ............................................ (10) (7) 2,617 2,528 Preferred stock With sinking fund requirements .............................................. 295 295 Without sinking fund requirements ........................................... 171 171 Long-term debt ................................................................ 2,802 2,829 5,885 5,823 Current Liabilities Commercial paper (Note 9) ................................ 68 Bank loans (Note 9) ........................................................... 10 21 Long-term debt due within one year ............................................ 30 30 Capital lease obligations due within one year ................................. 81 81 Accounts payable .............................................................. 132 128 Taxes accrued ................................................................. 21 48 Interest accrued .............................................................. 60 66 Dividends payable ............................................................. 75 74 Other ......................................................................... 78 86 487 602 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 5) ................. 209 219 Deferred income taxes (Note 5) ................................................ 2,050 2,106 Capital lease obligations .................................................... 166 139 Other (Notes 1, 3, 6 and 10) .................................................. 574 535 2,999 2,999 Commitments and Contingent Liabilities (Note 14) ............................ $9,371 $9,424 See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY Pennsylvania Power & Light Company and Subsidiaries (Millions of Dollars)
Common Capital Stock Additional Stock Outstanding Paid-in Earnings Expense & Shares (a) Amount Capital Reinvested Other Balance at December 31, 1993......... 152,132,089 $1,371 $0 $1,066 $(11) Net income...................................................... 243 Cash dividends declared Preferred stock.............................................. (28) Common stock............................................... (257) Dividends for capitalization of PMDC....................................................... (50) Stock redemption costs................................... (1) Common stock issued (b) ........................ 3,349,873 70 Other................................................................ 1 Balance at December 31, 1994......... 155,481,962 $1,441 $0 $973 $(10) Net income...................................................... 352 Cash dividends declared Preferred stock.............................................. (28) Common stock............................................... (263) Common stock issued (b) ........................ 1,818,420 35 Capital contribution from PP&L Resources........................................... 25 Other................................................................ 3 Balance at December 31, 1995......... 157,300,382 $1,476 $25 $1,034 $(7) Net income...................................................... 357 Cash dividends declared Preferred stock.............................................. (28) Common stock............................................... (269) Common stock issued (b) ............................... Other................................................................ 32 (3) Balance at December 31, 1996......... 157,300,382 $1,476 $57 $1,094 $(10) (a) No par value. 170,000,000 shares authorized. As of April 27, 1995, all holders of PP&L common stock became holders of PP&L Resources common stock, all PP&L common stock was acquired by PP&L Resources. (b) Common Stock was issued through the ESOP and DRIP.
Consolidated Statement of Preferred Stock at December 32 Pennsylvania Power & Light Company and Subsidiaries(a) (Millions of Dollars)
Shares Outstanding Outstanding Shares 1996 1995 1996 Authorized Preferred Stock -- $100 par, cumulative 4-1/2%.......................... $53 $53 530,189 629,936 Series....................................................... 413 413 4,133,556 10,000,000 $466 $466 See accompanying Notes to Financial Statements.
Details of Preferred Stock (b)
Optional Sinking Fund Redemption Provisions (c) Shares Price Per Shares to be Outstanding Outstanding Share Redeemed Redemption 1996 1995 1996 1996 Annually Period With Sinking Fund Requirements Series Preferred 5.95% ................... $30 $30 300,000 (d) 300,000 April 2001 6.05%.................... 25 25 250,000 (d) 250,000 April 2002 6.125% .................. 115 115 1,150,000 (d) (e) 2003-2008 6.15%.................... 25 25 250,000 (d) 250,000 April 2003 6.33% ................... 100 100 1,000,000 (d) (f) 2003-2008 $295 $295 Without Sinking Fund Requirements 4-1/2% Preferred........... $53 $53 530,189 $110.00 Series Preferred 3.35%.................... 4 4 41,783 103.50 4.40%.................... 23 23 228,773 102.00 4.60%.................... 6 6 63,000 103.00 6.75%.................... 85 85 850,000 (d) $171 $171 Increases (Decreases) in Preferred Stock 1996 1995 1994 Shares Amount Shares Amount Shares Amount Series Preferred Stock 5.95% ............................. 300,000 $30 6.05% ............................. 250,000 25 6.125% ........................... 6.15% ............................. 250,000 25 6.33% ............................. 6.75% ............................. 6.875% ........................... (400,000) (40) 7.00% ............................. (800,000) (80) Decreases in Preferred Stock represent: (i) the redemption of stock pursuant to sinking fund requirements; or (ii) shares redeemed pursuant to optional redemption provisions. There were no issuances or redemptions of preferred stock in 1996 or 1995. (a) Each share of PP&L's preferred stock entitles the holder to one vote on any question presented to PP&L's shareowners' meetings. There were 5,000,000 shares of PP&L's preference stock authorized; none were outstanding at December 31, 1996 and 1995, respectively. (b) The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends). (c) These series of preferred stock are not redeemable prior to the following years: 5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003. (d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 862,500. (e) Shares to be redeemed annually on July 1 as follows: 2003-2007, 50,000; 2008, 750,000. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31 Pennsylvania Power & Light Company and Subsidiaries (Millions of Dollars)
Outstanding 1996 1995 Maturity(b) First Mortgage Bonds (a) 5 5/8% .................................. $30 June 1, 1996 6 3/4% .................................................. $30 30 November 1, 1997 5 1/2%................................................... 150 150 April 1, 1998 7%....................................................... 40 40 January 1, 1999 8 1/8%................................................................... 40 June 1, 1999 6%....................................................... 125 125 June 1, 2000 7 1/4% .................................................. 60 60 February 1, 2001 6.5% to 7 3/4%........................................... 755 830 2002-2006 7.70%.................................................... 200 200 2007-2011 (c) 7 3/8%................................................... 100 100 2012-2016 9 1/4% to 9 3/8% ........................................ 315 315 2017-2021 6 3/4% to 8 1/2% ........................................ 650 650 2022-2026 First Mortgage Pollution Control Bonds (a) 6.40% Series H........................... 90 90 November 1, 2021 5.50% Series I........................................... 53 53 February 15, 2027 6.40% Series J........................................... 116 116 September 1, 2029 6.15% Series K........................................... 55 55 August 1, 2029 2,739 2,884 Unsecured promissory notes ................................ 116 (d) 2,855 2,884 Unamortized (discount) and premium -- net ................. (23) (25) 2,832 2,859 Less amount due within one year............................ 30 30 Total long-term debt .................................... $2,802 $2,829 __________________________________________ (a) Substantially all owned electric utility plant is subject to the lien of PP&L's first mortgage. (b) Aggregate long-term debt maturities through 2001 are (millions of dollars): 1997, $30; 1998, $150; 1999, $40; 2000, $125; 2001, $60. Maximum sinking fund requirements aggregate $5.6 million through 2001 and may be met with property additions or retirement of bonds. The annual sinking fund requirements through 2001 will not exceed $1.8 million. (c) Any registered owner of these bonds has the right to require PP&L to redeem such owner's bonds on October 1, 1999 at a price of 100% of the principal amount. (d) In 1996, PP&L issued $116 million of unsecured promissory notes due in March 2001. The proceeds were used to redeem $40 million of First Mortgage Bonds, 8-1/8% Series due 1999, and $75 million of First Mortgage Bonds, 7-5/8% Series due 2002. See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS Terms and abbreviations appearing in Notes to Financial Statements are explained in the glossary. 1. Summary of Significant Accounting Policies Business and Consolidation PP&L Resources is the parent holding company of PP&L, PMDC and Spectrum. PP&L's financial condition and results of operations are currently the principal factors affecting PP&L Resources' financial condition and results of operations. PP&L is an operating electric utility serving customers in central eastern Pennsylvania. All nonutility operating transactions are included in "Other Income and Deductions -- Net" on the Consolidated Statements of Income. The consolidated financial statements include the accounts of PP&L Resources and its direct and indirect subsidiaries. All significant intercompany transactions have been eliminated. Less than 50% owned affiliates are accounted for using the equity method. These affiliates consist principally of Safe Harbor Water Power Corporation and investments held by PMDC. Reclassification Certain amounts from prior years' financial statements have been reclassified to conform to the current year presentation. Management's Estimates These financial statements have been prepared using information available including certain information which represents management's best estimates of existing conditions. Actual results could differ from these estimates. Accounting Records The accounting records for PP&L, the principal subsidiary of PP&L Resources, are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC. Regulation PP&L prepares its financial statements in accordance with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 requires a rate-regulated entity to reflect the effects of regulatory decisions in its financial statements. In accordance with SFAS 71, PP&L has deferred certain costs pursuant to the rate actions of the PUC and the FERC and is recovering or expects to recover such costs in electric rates charged to customers. These deferred costs or "regulatory assets" are enumerated and discussed in Note 8. To the extent that PP&L concludes that recovery of a regulatory asset is no longer probable due to regulatory treatment, the effects of competition or other factors, the amount would have to be written off against income. Utility Plant Additions to utility plant and replacement of units of property are capitalized at cost. The cost of funds used to finance construction projects or AFUDC is capitalized as part of construction cost. The cost of units of property retired or replaced is charged to accumulated depreciation. Expenditures for maintenance and repairs of property and the cost of replacing items determined to be less than an entire unit of property are charged to operating expense. Major classes of electric utility plant in service and their respective balances are (millions of dollars): 1996 1995 Production $6,303 $6,251 Transmission 386 374 Distribution 2,774 2,652 General 303 302 Other 58 58 $9,824 $9,637 For financial statement purposes, depreciation is being provided over the estimated useful lives of property using a straight-line method for all property except for certain property at the Susquehanna steam station. Susquehanna property is depreciated at an annual rate of $173 million from October 1995 through December 1998, after which depreciation is scheduled to decline by $71 million annually. Provisions for depreciation, as a percent of average depreciable property, approximated 3.8% in 1996, 3.7% in 1995 and 3.5% in 1994. Nuclear Decommissioning and Fuel Disposal An annual provision for PP&L's share of the future cost to decommission the Susquehanna station, equal to the amount allowed for ratemaking purposes, is charged to operating expense. Such amounts are invested in external trust funds which can be used only for future decommissioning costs. See Notes 3 and 6. The DOE is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors. PP&L pays DOE a fee for future disposal services and recovers such costs in customer rates. PP&L has joined other utilities in a federal lawsuit to suspend payments to DOE and to place the fees in escrow unless that department begins accepting nuclear fuel as agreed to in its contract with the utilities. Financial Investments Securities subject to the requirements of SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" are carried at fair value, determined at the balance sheet date. Net unrealized gains on available-for-sale securities are included in common equity. Net unrealized gains and losses on trading securities are included in income. Net unrealized gains and losses on securities that are not available for unrestricted use due to regulatory or legal reasons are reflected in the related asset and liability accounts. Realized gains and losses on the sale of securities are recognized utilizing the specific cost identification method. Investments in financial limited partnerships are accounted for under the equity method of accounting and venture capital investments are recorded at cost. See Note 7. Premium on Reacquired Long-Term Debt Premiums paid and expenses incurred by PP&L to redeem long-term debt are deferred and amortized over the life of the new debt issue or the remaining life of the retired debt when the redemption is not financed by a new issue. Capital Leases Leased property of PP&L capitalized on the Consolidated Balance Sheet is recorded at the present value of future lease payments and is amortized so that the total of interest on the lease obligation and amortization of the leased property equals the rental expense allowed for ratemaking purposes. Future minimum lease payments under capital leases in effect at December 31, 1996 (excluding nuclear fuel) aggregate $89 million, including $13 million in imputed interest. Future lease payments for nuclear fuel are based on the quantity of electricity produced at the Susquehanna Station. The maximum amount of nuclear fuel available for lease under current arrangements is $200 million. Revenues Electric revenues are recorded based on the amounts of electricity delivered to customers through the end of each calendar month. This includes amounts customers will be billed for electricity delivered from the time meters were last read to the end of the month. Through December 1996, PP&L's tariff included revenues from the ECR, SBRCA and STAS. Approximately 98% of operating revenues were derived from electric energy sales, with 35% coming from residential customers, 28% from commercial customers, 20% from industrial customers, 14% from other major utilities and the PJM and 3% from others. For information on the ECR, SBRCA and STAS, see Note 3. Income Taxes PP&L Resources and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to operating expenses and other income and deductions on the Consolidated Statements of Income. The provision for PP&L's deferred income taxes is based upon the ratemaking principles reflected in rates established by the PUC and FERC. The difference in the provision for deferred income taxes and the amount that otherwise would be recorded under generally accepted accounting principles is deferred and included in taxes recoverable through future rates on the Consolidated Balance Sheet. See Note 5. Investment tax credits were deferred when utilized and are amortized over the average lives of the related property. Pension Plan and Other Postretirement and Postemployment Benefits PP&L has a noncontributory pension plan covering substantially all employees. Subsidiary companies of PP&L formerly engaged in coal mining have a noncontributory pension plan for substantially all non-bargaining, full-time employees. Funding is based upon actuarially determined computations that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974. PMDC has a non-qualified retirement plan for its corporate officers. For information on other postretirement and postemployment benefits, see Note 10. Cash Equivalents All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents. 2. Pennsylvania Restructuring Legislation In December 1996, Pennsylvania enacted legislation to restructure its electric utility industry in order to create retail access to a competitive market for the generation of electricity. The legislation, which was effective on January 1, 1997, includes the following major provisions: 1. All electric utilities in Pennsylvania are required to file, beginning on April 1, 1997 and in no event later than September 30, 1997, a restructuring plan to implement direct access to a competitive market for electric generation. The plan must include unbundled rates for generation, jurisdictional transmission, distribution and other services; a proposed competitive transition charge; a proposed universal service and energy conservation cost recovery mechanism; procedures for ensuring direct access to all licensed energy suppliers; a discussion of the proposed plan's impacts on utility employees and revised tariffs and rates implementing the foregoing. 2. Retail customer choice will be phased in as follows: up to 33% of all customer load on January 1, 1999; up to 66% of all customer load on January 1, 2000; and 100% of all customer load by January 1, 2001. The PUC can delay this schedule by two 6-month periods, if necessary. 3. Electric distribution companies will be the suppliers of last resort. The PUC will ensure that adequate generation reserves exist to maintain reliable electric service. The utility's transmission and distribution system must continue to meet established national industry standards for installation, maintenance and safety. 4. Retail rates will be capped for at least 4-1/2 years for transmission and distribution charges and for as long as 9 years for generation charges. A utility may be exempted from the caps only under very specific circumstances, e.g., the need for extraordinary rate relief, non-utility generation contracts, changes in laws or regulations, required upgrades or repairs to the transmission system, increases in fuel prices or purchased power prices, nuclear power plant decommissioning costs or taxes. 5. Pennsylvania utilities are permitted to recover PUC-approved transition or stranded costs over several years; however, the utilities are required to mitigate these costs to the extent practicable. Also, the recovery of these costs must not result in cost shifting among customers. 6. "Transition bonds" may be issued to pay the stranded costs. This procedure involves the following elements: (i) the sale or transfer by the utility of the right to recover a portion of its stranded costs to a financing entity -- for a lump-sum payment of cash -- that could be used to retire the utility's debt and equity and to pay stranded costs; (ii) the issuance by the financing entity of "transition bonds"; (iii) the collection by the utility of "transition charges" on customers' bills, which are transferred to the financing entity to pay the principal and interest and other related costs of issuing the transition bonds; (iv) upon the imposition of transition charges on customers' bills, the utility must reduce customer rates by an amount equal to the revenue requirements of the stranded costs financed with transition bonds; and (v) a PUC "qualified rate order," which could be irrevocable, approving the collection of the transition charges. This irrevocability would protect the cash flow stream used to repay the transition bonds. 7. All generation suppliers must demonstrate financial and technical fitness and must be licensed by the PUC. Cooperatives and municipalities may participate in retail competition but are not subject to the provisions of the legislation, unless they elect to serve customers outside their franchise territories. 8. State tax revenues paid by utilities and generation suppliers are to remain at their current level, to protect against any state revenue loss from restructuring. 9. The PUC will monitor electricity markets for anti-competitive or discriminatory conduct, and will consider the impact of mergers and acquisitions on these markets. PP&L is formulating its restructuring plan, which it currently plans to file on April 1, 1997. Under the legislation, the PUC must take action on the restructuring plan within nine months of the filing date. PP&L is unable to predict the ultimate effect of this legislation on its financial position, results of operation or its need to issue securities to meet future capital requirements. 3. Rate Matters Base Rate Filing with the PUC In September 1995, the PUC issued a final order with respect to the base rate case filed by PP&L in December 1994. The PUC Decision increased PUC jurisdictional rates by about $85 million annually, or 3.8%. The PUC Decision permitted the levelization of depreciation expense for the Susquehanna station, recovery of retiree health care costs and costs of the 1994 voluntary early retirement program and revised costs to decommission Susquehanna SES. The order also permitted recovery of deferred operating and capital costs, net of energy savings, for Susquehanna Unit 2 but disallowed similar costs for Unit No. 1. The PUC also ruled that PP&L could not include in the ECR the cost of capacity billed to other utilities after the contractual arrangements with these utilities expire. The OCA has appealed certain aspects of the PUC Decision to the Commonwealth Court. PP&L cannot predict the final outcome in this matter. Energy Cost Rate Issues Through December 1996, PP&L's PUC tariffs contained an ECR under which customers were billed an estimated amount for fuel and other energy costs. Any difference between the actual and estimated amount for such costs was collected from, or refunded to, customers in a subsequent period. In December 1996, the PUC issued a tentative order permitting the roll-in of PP&L's ECR into base rates. The order also authorized PP&L to defer certain unrecovered energy costs as regulatory assets and seek recovery for these costs in the competitive transition charge described above under "Pennsylvania Restructuring Legislation." In 1994, the PUC reduced PP&L's ECR claim by $16 million for costs associated with replacement power during a Susquehanna Unit 1 outage for refueling and repairs. PP&L's appeal of that reduction was settled in 1995, and as a result PP&L recorded a net credit to income of $10 million. Special Base Rate Credit Adjustment Beginning in April 1991, PP&L's PUC tariff included a SBRCA rider which provided for credits to retail customers' bills for three nonrecurring items. They were (i) the use of an inventory method of accounting for certain power plant spare parts (this credit expired as of April 1, 1996); (ii) the sale of capacity and related energy from PP&L's wholly owned coal-fired stations to Atlantic (this credit was rolled into retail base rates at Docket No. R-00943271 and was removed from the SBRCA effective in September 1995); and (iii) the proceeds from a settlement of outstanding contract claims arising from construction of the Susquehanna station (this credit is due to expire in the second quarter of 1997). State Tax Adjustment Surcharge Through December 1996, PP&L's PUC tariffs included a rate mechanism to adjust customer bills for changes in certain state taxes. The STAS had no effect on net income. In December 1996, the PUC issued a tentative order permitting the roll-in of STAS into base rates. FERC-Major Utilities' Rates In August 1995, JCP&L filed a complaint against PP&L with the FERC regarding billings under the bulk power sales agreement between the parties. In its complaint, JCP&L alleges that PP&L inappropriately allocated certain costs to JCP&L that should not have been billed and seeks other adjustments. JCP&L is seeking both refunds (with interest) in an unspecified amount and an amendment to the agreement. PP&L has denied JCP&L's allegations and requested that FERC dismiss the complaint. PP&L cannot predict the final outcome of this proceeding. In October 1995, FERC allowed PP&L to begin charging, subject to refund, four major electric utility customers of PP&L (Atlantic, BG&E, JCP&L and UGI) for certain PP&L costs for post-retirement benefits other than pensions. In that same proceeding, FERC opened to review all other charges by PP&L under its contracts with those customers. JCP&L raised a number of objections to PP&L's charges. In November 1996, an Administrative Law Judge ruled in PP&L's favor on all issues. The case currently is pending before the FERC. 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 these same four major utilities. PP&L also sought to increase the charges to those customers for nuclear decommissioning costs. This case was settled in principle with the four customers in January 1997, under terms which would have no material effect on PP&L. Formal settlement documents are expected to be filed with the FERC by March 1997. See Note 4 for more information regarding these contracts. 4. Sales to Other Electric Utilities PP&L provides Atlantic with 125,000 kilowatts of capacity (summer rating) and related energy from its wholly owned coal-fired stations. Sales to Atlantic will continue through March 1998. PP&L provided JCP&L with 756,000 kilowatts of capacity and related energy from all of its generating units during 1996. This amount will decline by 189,000 kilowatts per year until the end of the agreement on December 31, 1999. PP&L expects to be able to resell the capacity and energy at market prices. In March 1996, the New Jersey Board of Public Utilities approved an agreement between PP&L and JCP&L, under which PP&L will provide JCP&L with 150,000 kilowatts of capacity credits and energy from June 1997 through May 1998, 200,000 kilowatts from June 1998 through May 1999 and 300,000 kilowatts from June 1999 through May 2004. Prices under the new agreement are based on a predetermined reservation rate that escalates over time, plus an energy component based on PP&L's actual fuel-related costs. PP&L filed the agreement for FERC review and acceptance in October 1996, and the matter is still pending. PP&L provides BG&E with 129,000 kilowatts or 6.6 percent of its share of capacity and related energy from the Susquehanna station. Sales to BG&E will continue through May 2001. See Note 3 for more information regarding these contracts. In September 1996, PP&L made installed capacity credit sales for up to 300,000 kilowatts to GPU Energy which will continue through the first half of 1997. On December 31, 1996, PP&L filed for FERC approval of amendments to its generation sales tariff to allow PP&L to buy energy for the purpose of resale in competitive wholesale markets. This change provides PP&L flexibility in pursuing wholesale power supply opportunities to increase operating revenues. PP&L is currently operating under this amended tariff, subject to final FERC approval. 5. Income Taxes The corporate federal income tax rate is 35%. The Pa. CNI rate was 11.99% in 1994 and 9.99% in 1995 and 1996. For 1995 PP&L Resources recorded a decrease in Pa. CNI expense of $8 million from the prior year related to the rate reduction. Substantially all of this reduction was reflected in lower customer rates through the STAS. The tax effects of significant temporary differences comprising PP&L Resources' net deferred income tax liability were as follows (millions of dollars): 1996 1995 Deferred tax assets Deferred investment tax credits $ 86 $ 90 Accrued pension costs 67 54 Other 75 87 Valuation allowance (6) (6) 222 225 Deferred tax liabilities Electric utility plant - net 1,788 1,788 Other property - net 9 12 Taxes recoverable through future rates 399 416 Reacquired debt costs 46 48 Other 11 25 2,253 2,289 Net deferred tax liability $2,031 $2,064 Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes, other than income are as follows (millions of dollars): Income Tax Expense 1996 1995 1994 Included in operating expenses Provision - Federal $189 $195 $198 State 64 62 77 253 257 275 Deferred - Federal 4 9 (34) State 6 6 (11) 10 15 (45) Investment tax credit, net - Federal (10) (10) (12) 253 262 218 Included in other income and deductions Provision (credit) - Federal (1) 8 (18) State 1 4 (7) 0 12 (25) Deferred - Federal 1 10 (9) State (1) 2 (4) 0 12 (13) 0 24 (38) Total income tax expense - Federal 183 212 125 State 70 74 55 $253 $286 $180 Reconciliation of Income Tax Expense Indicated federal income tax on pre-tax income at statutory tax rate - 35% $213 $223 $148 Increase (decrease) due to: State income taxes 44 50 35 Flow through of depreciation differences not previously normalized 20 16 15 Amortization of investment tax credit (10) (10) (12) Research & experimentation income tax credits (5) Other (9) 7 (6) 40 63 32 Total income tax expense $253 $286 $180 Effective income tax rate 41.5% 44.9% 42.4% Taxes, Other Than Income State gross receipts $105 $102 $ 99 State utility realty 44 46 47 State capital stock 34 33 35 Social security and other 20 20 20 $203 $201 $201 6. Nuclear Decommissioning Costs PP&L's most recent estimate of the cost to decommission the Susquehanna station was completed in 1993 and was a site-specific study, based on immediate dismantlement and decommissioning of each unit following final shutdown. The study indicates that PP&L's 90% share of the total estimated cost of decommissioning the Susquehanna station is approximately $724 million in 1993 dollars. The estimated cost includes decommissioning the radiological portions of the station and the cost of removal of nonradiological structures and materials. The operating licenses for Units 1 and 2 expire in 2022 and 2024, respectively. Decommissioning costs charged to operating expense were $12 million in 1996, $8 million in 1995 and $7 million in 1994 and are based upon amounts included in customer rates. The increases in 1996 and 1995 are a result of the PUC Decision, in which recovery of decommissioning costs was based on the cost estimates in the 1993 site-specific study. Rates charged to small utilities reflect the estimated cost of decommissioning in the 1993 study. In January 1996, PP&L filed with the FERC to increase its decommissioning rate to reflect the projected cost of decommissioning the Susquehanna station. See Note 3 for further information. Amounts collected from customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can be used only for future decommissioning costs. The market value of securities held and accrued income in the trust funds at December 31, 1996 and 1995 aggregated approximately $128 million and $109 million, respectively. The trust funds experienced, on a fair market value basis, a $6 million net gain in 1996, which includes net unrealized appreciation of $2 million, and a net gain in 1995 of $14 million, which includes net unrealized appreciation of $8 million. The trust fund activity is reflected in the nuclear plant decommissioning trust fund and in other noncurrent liabilities on the Consolidated Balance Sheet. Accrued nuclear decommissioning costs were $130 million and $112 million at December 31, 1996 and 1995, respectively. The FASB issued an exposure draft on the accounting for liabilities related to closure and removal of long-lived assets, including decommissioning of nuclear power plants. As a result, current industry accounting practices for decommissioning may change, including the possibility that the estimated cost for decommissioning could be recorded as a liability at the present value of the estimated future cash outflows that will be required to satisfy those obligations. 7. Financial Instruments The carrying amount shown on the Consolidated Balance Sheet and the estimated fair value of PP&L Resources' financial instruments are as follows (millions of dollars): December 31, 1996 December 31, 1995 Carrying Fair Carrying Fair Amount Value Amount Value Assets Nuclear plant decommis- sioning trust fund (a) $128 $128 $109 $109 Financial investments (a) 206 206 238 236 Other investments 18 18 9(c) 9(c) Cash and cash equivalents 101 101 20 20 Other financial instru- ments included in other current assets 2 2 3 3 Liabilities Preferred stock with sinking fund require- ments (b) 295 294 295 295 Long-term debt (b) 2,832 2,885 2,859 3,033 Commercial paper and bank loans 144 144 89 89 (a) The carrying value of financial instruments generally is based on established market prices and approximates fair value. (b) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PP&L Resources where quoted market prices are not available. (c) $12 million of PMDC's other investments for 1995 were reclassi- fied as investments in electric energy projects - at equity. 8. Regulatory Assets The following regulatory assets were reflected in the PP&L Consolidated Balance Sheet (millions of dollars): 1996 1995 Deferred depreciation $ 140 $ 209 Deferred operating and carrying costs - Susquehanna 17 18 Reacquired debt costs 110 117 Taxes recoverable through future rates 963 1,003 Assessment for decommissioning uranium enrichment facilities 30 32 Postretirement benefits other than pensions 28 31 Voluntary early retirement program 49 62 ECR undercollection 17 Other 45 57 $1,399 $1,529 As of December 31, 1996, substantially all of PP&L's regulatory assets are being recovered through rates charged to customers over periods ranging from 3 to 29 years. In December 1996, Pennsylvania passed restructuring legislation which will continue to permit utilities to recover approved regulatory assets as transition or stranded costs. See Note 2 "Pennsylvania Restructuring Legislation". For a discussion of taxes recoverable through future rates, postretirement benefits other than pensions, assessment for decommissioning uranium enrichment facilities, VERP, and additional information on the PUC Decision, see Notes 3, 5, 10, and 11. 9. Credit Arrangements PP&L issues commercial paper and, from time to time, borrows from banks to provide short-term funds required for general corporate purposes. In addition, certain subsidiaries also borrow from banks to obtain short-term funds. Bank borrowings generally bear interest at rates negotiated at the time of the borrowing. PP&L's weighted average interest rate on short-term borrowings was 4.9% and 6.0% at December 31, 1996 and 1995, respectively. PP&L has a $250 million revolving credit arrangement with a group of banks. At the option of PP&L, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate. Any loans made under this credit arrangement would mature in September 1999. PP&L has additional credit arrangements with another group of banks. The banks have committed to lend PP&L up to $45 million under these credit arrangements, which mature in May 1997, at interest rates based upon Eurodollar deposit rates or the prime rate. These credit arrangements produce a total of $295 million of lines of credit to provide back-up for PP&L's commercial paper and short-term borrowings of certain subsidiaries. No borrowings were outstanding at December 31, 1996 under these credit arrangements. PP&L Resources has a revolving credit facility in the amount of $300 million. At the option of PP&L Resources, interest rates can be based on Eurodollar deposit rates or the prime rate. Loans made under this credit arrangement will mature, and the facility will terminate at the end of May 1997. PP&L Resources used $190 million of this credit facility in June 1996 to fund a PMDC subsidiary's acquisition of a 25 percent interest in SWEB. Borrowings of $135 million were outstanding under this credit facility at December 31, 1996. PP&L Resources expects to repay a portion of the outstanding balance through the liquidation of temporary cash investments and repay the balance by issuing medium-term notes. PP&L leases its nuclear fuel from a trust. The maximum financing capacity of the trust under existing credit arrangements is $200 million. 10. Pension Plan and Other Postretirement and Postemployment Benefits Pension Plan PP&L has a funded noncontributory defined benefit pension plan covering substantially all employees. Benefits are based upon a participant's earnings and length of participation in the Plan, subject to meeting certain minimum requirements. PP&L has an unfunded supplemental retirement plan for certain management employees. A similar plan for directors was terminated December 31, 1996. Benefit payments pursuant to these supplemental plans are made directly by PP&L. At December 31, 1996, the projected benefit obligation of these supplemental plans was approximately $20 million. Effective December 1, 1994, PMDC has a non-qualified retirement plan for its corporate officers. The cost of the plan was immaterial in 1996. The components of PP&L's net periodic pension cost for the three plans were (millions of dollars): 1996 1995 1994 Service cost-benefits earned during the period $ 32 $ 27 $ 33 Interest cost 61 58 51 Actual return on plan assets (146) (241) 29 Net amortization and deferral 68 167 (96) Net periodic pension cost $ 15 $ 11 $ 17 The net periodic pension cost charged to operating expenses was $9 million in 1996, $6 million in 1995 and $10 million in 1994. The balance was charged to construction and other accounts. The funded status of PP&L's Plan was (millions of dollars): December 31 1996 1995 Fair value of plan assets $1,187 $1,086 Actuarial present value of benefit obligations: Vested benefits 695 673 Nonvested benefits 2 Accumulated benefit obligation 695 675 Effect of projected future compensation 191 194 Projected benefit obligation 886 869 Plan assets in excess of projected benefit obligation 301 217 Unrecognized transition assets (being amortized over 23 years) (59) (63) Unrecognized prior service cost 55 59 Unrecognized net gain (495) (394) Accrued expense $(198) $(181) The weighted average discount rate used in determining the actuarial present value of projected benefit obligations was 7.0% and 6.75% on December 31, 1996 and 1995, respectively. The rate of increase in future compensation used in determining the actuarial present value of projected benefit obligations was 5.0% on December 31, 1996 and 1995. The assumed long-term rates of return on assets used in determining pension cost in 1996 and 1995 was 8.0%. Plan assets consist primarily of common stocks, government and corporate bonds and temporary cash investments. PP&L's subsidiaries formerly engaged in coal mining have a noncontributory defined benefit pension plan covering substantially all non-bargaining unit, full-time employees, which is fully funded, primarily by group annuity contracts with insurance companies. This plan was amended to freeze benefit increases effective June 1996. In addition, the companies are liable under federal and state laws to pay black lung benefits to claimants and dependents with respect to approved claims, and are members of a trust which was established to facilitate payment of such liabilities. Such costs were not material in 1996, 1995 and 1994. Postretirement Benefits Other Than Pensions Substantially all employees of PP&L and its subsidiaries will become eligible for certain health care and life insurance benefits upon retirement. PP&L sponsors four health and welfare benefit plans that cover substantially all management and bargaining unit employees upon retirement. One plan provides for retiree health care benefits to certain management employees, another plan provides retiree health care benefits to bargaining unit employees, a third plan provides retiree life insurance benefits to certain management employees up to a specified amount and a fourth plan provides retiree life insurance benefits to bargaining unit employees. Dollar limits have been established for the amount PP&L will contribute annually toward the cost of retiree health care for employees retiring after March 1993. In accordance with a PUC order, PP&L had deferred from January 1, 1993 through 1994, the PUC-jurisdictional accrued cost of retiree health and life insurance benefits recorded pursuant to SFAS 106, "Employers' Accounting For Postretirement Benefits Other Than Pensions" in excess of actual claims paid pending recovery of the increased cost in retail rates. As a result of a decision of the Commonwealth Court, in 1994 PP&L started to expense the increased costs applicable to operations that were previously being deferred and wrote off such costs deferred in 1993. The PUC Decision in 1995 permitted recovery of the PUC- jurisdictional amount of retiree health care costs resulting from the adoption of SFAS 106. In addition, the PUC Decision permitted PP&L to recover, over a period of about 17 years, the amount of SFAS 106 costs that would have been deferred from January 1, 1993 through September 30, 1995, pursuant to a PUC order but for a Commonwealth Court decision that PP&L could not recover these deferred costs. As a result of the PUC Decision, which provided for recovery of $27 million of previously expensed SFAS 106 costs, PP&L recorded a $16 million after-tax credit to income in the third quarter of 1995. In December 1993, PP&L established a separate VEBA for each of the four health and welfare benefit plans for retirees. After making initial contributions, additional funding of the trusts was deferred pending resolution of PP&L's ability to recover the costs of the plans in rates. Continued funding of these trusts is subject to the resolution of the OCA appeal of the PUC Decision. See Note 3. The following table sets forth the plan's combined funded status reconciled with the amount shown on PP&L Resources' Consolidated Balance Sheet as of December 31 (millions of dollars): 1996 1995 Accumulated postretirement benefit obligation: Retirees $123 $128 Fully eligible active plan participants 19 18 Other active plan participants 85 79 227 225 Plan assets at fair value, primarily temporary cash investments 31 29 Accumulated postretirement benefit obligation in excess of plan assets 196 196 Unrecognized prior service costs (5) (5) Unrecognized net loss (12) (19) Unrecognized transition obligation (being amortized over 20 years) (139) (148) Accrued postretirement benefit cost $ 40 $ 24 The net periodic postretirement benefit cost included the following components (millions of dollars): 1996 1995 1994 Service cost - benefits attributed to service during the period $ 4 $ 4 $ 4 Interest cost on accumulated postretirement benefit obligation 15 15 14 Actual return on plan assets (1) (2) Net amortization and deferral 9 9 8 Net periodic postretirement benefit cost $ 27 $26 $26 Retiree health and benefits costs charged to operating expenses were approximately $20 million in 1996, a net credit of approximately $17 million in 1995 (reflecting both a $32 million credit due to the PUC Decision and costs applicable to contractual agreements with other major utilities), and $27 million in 1994 (which includes $11 million of retiree health and benefits costs previously deferred in 1993). Costs in excess of the amount charged to expense were charged to construction and other accounts. For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1997; the rate was assumed to decrease gradually to 6% by 2006 and remain at that level thereafter. Increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, by about $11 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by about $1 million. In determining the accumulated postretirement benefit obligation, the weighted average discount rate used was 7.0% and 6.75% on December 31, 1996 and 1995, respectively. The trusts that are holding the plan assets, except for retiree health care benefits to certain management employees, are tax-exempt. The expected long-term rate of return on plan assets for the tax-exempt trusts was 6.5% on December 31, 1996 and 1995. In 1992, as a result of the Energy Act, PP&L and its subsidiaries formerly engaged in coal mining accrued an additional liability for the cost of health care of retired miners previously employed by them. The liability, based on the present value of future benefits, was estimated at $54 million as of December 1996 and 1995. Postemployment Benefits PP&L provides health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not material. 11. Workforce Reductions PP&L continued its efforts to reduce costs in 1996. An employment decline of approximately 100 management employees occurred through job displacements, rather than from the type of major initiatives in workforce reductions that took place in 1994 and 1995. In anticipation of planned further workforce reductions in 1997 and to accrue for enhanced pension benefits for employees displaced in 1996, PP&L recorded costs of $5 million after-tax, or 3 cents per share of common stock. During 1995, PP&L offered a voluntary severance program to employees who are members of the IBEW Local 1600 and continued re-engineering efforts that reduced the management workforce. Total employment declined in 1995 by approximately 225 due to these two initiatives. The costs of the workforce reductions in 1995 amounted to about $19 million after-tax, or 11 cents per share of common stock. During 1994, PP&L offered a voluntary early retirement program to 851 employees who were age 55 or older by December 31, 1994. A total of 640 employees elected to retire under the program, at a total cost of $76 million. PP&L recorded the cost of the program as a charge against income in the fourth quarter of 1994, which reduced net income by $43 million, or 28 cents per share of common stock. As a result of the PUC Decision, which permitted recovery of the PUC-jurisdictional amount through customer rates, PP&L recorded in 1995 a $38 million after-tax credit to expense, or 24 cents per share of common stock, to reverse the charge for this program that was recorded in 1994. PP&L estimates annual savings of $35 million from this program, which were included in the PUC Decision. 12. Jointly Owned Facilities At December 31, 1996, PP&L or its subsidiary owned undivided interests in the following facilities (millions of dollars): Merrill -----Generating Stations------ Creek Susquehanna Keystone Conemaugh Reservoir Ownership interest 90.00% 12.34% 11.39% 8.37% Electric utility plant in service $4,060 $66 $102 Other property $22 Accumulated depreciation 1,000 35 37 8 Construction work in progress 55 1 1 Each participant in these facilities provides its own financing. PP&L receives a portion of the total output of the generating stations equal to its percentage ownership. PP&L's share of fuel and other operating costs associated with the stations is reflected on the PP&L Consolidated Statement of Income. The Merrill Creek Reservoir provides water during periods of low river flow to replace water from the Delaware River used by PP&L and other utilities in the production of electricity. 13. Subsidiary Coal Reserves In connection with a review by PP&L of its non-core business assets performed in 1994, a subsidiary of PP&L initiated an evaluation of the carrying value of its $84 million investment in undeveloped coal reserves in western Pennsylvania. Outside appraisal firms completed the evaluation and indicated that due to changing market conditions an impairment had occurred. Accordingly, the carrying value of this investment was written down to its estimated net realizable value of $10 million, resulting in a $74 million pre-tax charge to income. This write down resulted in an after-tax charge to income of $40 million in 1994. These reserves were acquired in 1974 with the intention of supplying future coal-fired generating stations. PP&L concluded that it would not develop these reserves. In November 1995, the coal reserves were sold for $52 million, which resulted in a $42 million gain, or $20 million after-tax. 14. Commitments and Contingent Liabilities Construction Expenditures PP&L's construction expenditures for the period 1997-2001 are estimated to aggregate $1.2 billion, including AFUDC. For discussion pertaining to construction expenditures, see Review of Financial Condition and Results of Operations under the caption "Financial Condition -- Capital Expenditure Requirements" on page 32. 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 December 31, 1996 was about $35 million. PP&L's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $8.9 billion under provisions of The Price Anderson Amendments Act of 1988. PP&L is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PP&L could be assessed up to $151 million per incident, payable at a rate of $20 million per year, plus an additional 5% surcharge, if applicable. Environmental Matters Air The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions. PP&L has complied with the Phase I acid rain provisions, required to be implemented by 1995, by installing continuous emission monitors on all units, burning lower sulfur coal and installing low nitrogen oxide burners on certain units. To comply with the year 2000 acid rain provisions, PP&L plans to purchase lower sulfur coal and use banked or purchased emission allowances instead of installing FGD on its wholly- owned units. PP&L has met the initial ambient ozone requirements identified in Title I of the Clean Air Act by reducing nitrogen oxide emissions by 40% through the use of low nitrogen oxide burners. Further seasonal (i.e., 5 month) nitrogen oxide reductions to 55% and 75% of pre-Clean Air Act levels for 1999 and 2003, respectively, are specified under the Northeast Ozone Transport Region's Memorandum of Understanding. The Clean Air Act requires EPA to study the health effects of hazardous air emissions from power plants and other sources. In this regard, in November 1996 the EPA proposed new national standards for ambient levels of ground-level ozone and fine particulates. The new standards, if implemented, may result in EPA mandating additional NOx and SO2 reductions from utility boilers in the 2005-2010 timeframe. NOx reductions to meet the new ozone standard are likely to be in the range of the 75% seasonal NOx reductions that already are required for PP&L under the Memorandum of Understanding in 2003 and beyond. However, to meet the new fine particulate standards, EPA may mandate additional SO2 reductions significantly greater than those now planned for the acid rain program and extend the NOx reductions required by the Memorandum of Understanding from seasonal to year-round. Expenditures to meet the year 1999 Memorandum of Understanding 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". 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 could be material. Water and Residual Waste DEP residual waste regulations require PP&L to obtain permits for existing ash basins at all of its coal-fired generating stations as disposal facilities. Ash basins that cannot be permitted are required to close by July 1997. Any groundwater contamination caused by the basins must also be addressed. Any new ash disposal facility must meet the rigid siting and design standards set forth in the regulations. To address the DEP regulations, PP&L is moving forward with plans to install dry fly ash handling systems at its power stations. Groundwater degradation related to fuel oil leakage from underground facilities and seepage from coal refuse disposal areas and coal storage piles has been identified at several PP&L generating stations. Remedial work is substantially completed at two generating stations. At this time, there is no indication that remedial work will be required at other PP&L generating stations. The current Montour station NPDES permit and proposed Holtwood station NPDES permit contain stringent limits for certain toxic metals and increased monitoring requirements. Depending on the results of toxic reduction studies in progress, additional water treatment facilities may be needed at these stations. 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". PP&L currently estimates that $12 million of additional capital expenditures may be required in the next four years and $67 million of additional capital expenditures could be required beyond the year 2001. Actions taken to correct groundwater degradation, to comply with the DEP's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but could be material. Superfund and Other Remediation PP&L has signed a consent order with the DEP to address a number of sites where PP&L may be liable for remediation of contamination. This may include potential PCB contamination at certain PP&L substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PP&L; and oil or other contamination which may exist at some of PP&L's former generating facilities. At December 31, 1996, PP&L had accrued $10 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 may be material. Loan Guarantees of Affiliated Companies PMDC has provided a parental guarantee of a subsidiary's pro rata share of the outstanding portion of certain debt issuances of an investee. At December 31, 1996, $11 million of such loans were guaranteed by PMDC. During 1997, PMDC will guarantee another $8 million in connection with additional borrowings in 1997. In addition, Spectrum has a $1 million line of credit, which is guaranteed by PP&L Resources. Source of Labor Supply At December 31, 1996, PP&L had a total of approximately 6,428 full- time employees. Approximately 65 percent of these full-time employees are represented by the IBEW. The existing three-year agreement with the IBEW will expire in May 1997. SELECTED FINANCIAL AND OPERATING DATA
1996 1995 1994 1993 1992 PP&L RESOURCES, INC. Income Items -- millions Operating revenues ................ $2,910 $2,752 $2,725 $2,727 $2,744 Operating income............................... 556 574 501 563 573 Net Income (e)................................. 329 323 (d) 216 (d) 314 306 Balance Sheet Items -- millions (a) Property, plant and equipment, net. 6,960 6,970 7,195 7,146 7,020 Total assets................................... 9,636 9,492 9,372 9,454 8,192 Long-term debt................................. 2,832 2,859 2,941 2,663 2,627 Preferred and preference stock With sinking fund requirements................................ 295 295 295 335 326 Without sinking fund requirements................................ 171 171 171 171 224 Common equity.................................. 2,745 2,597 2,454 2,426 2,367 Short-term debt................................ 144 89 74 202 159 Total capital provided by investors.................................. 6,187 6,011 5,936 5,797 5,703 Capital lease obligations ..................... 247 220 225 249 251 Financial Ratios Return on average common equity -- % ...................... 12.30 12.81 8.73 13.06 13.11 Embedded cost rates (a) Long-term debt -- %.......................... 7.89 7.95 8.07 8.63 9.36 Preferred and preference stock -- %.................................. 6.09 6.09 6.07 6.30 7.36 Times interest earned before income taxes................................. 3.55 3.56 2.73 3.33 3.18 Ratio of earnings to fixed charges -- total enterprise basis (b)................ 3.45 3.47 2.70 3.31 3.15 Ratio of earnings to fixed charges and dividends on preferred and preference stock --total enterprise basis (b)................ 2.90 2.91 2.27 2.71 2.53 Common Stock Data Number of shares outstanding -- thousands Year-end..................................... 162,665 159,403 155,482 152,132 151,885 Average...................................... 161,060 157,649 153,458 151,904 151,676 Number of shareowners (a)...................... 123,290 128,075 132,632 130,677 129,394 Earnings per share ............................ $2.05 $2.05 (d) $1.41 (d) $2.07 $2.02 Dividends declared per share................... $1.67 $1.67 $1.67 $1.65 $1.60 Book value per share (a)....................... $16.87 $16.29 $15.79 $15.95 $15.58 Market price per share (a)..................... $23 $25 $19 $27 $27-1/4 Dividend payout rate -- %...................... 82 82 119 80 79 Dividend yield -- % (c)........................ 7.26 6.68 8.79 6.11 5.87 Price earnings ratio (c)....................... 11.22 12.20 13.48 13.04 13.49 (a) At year-end (b) Computed using earnings and fixed charges of PP&L Resources and its subsidiaries. Fixed charges consist of interest on short-and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals. (c) Based on year-end market prices. (d) 1995 and 1994 earnings were affected by several one-time adjustments. See Financial Notes 3, 11, and 13. (e) Prior years restated to reflect formation of the holding company.
SELECTED FINANCIAL AND OPERATING DATA
1996 1995 1994 1993 1992 Pennsylvania Power & Light Company Income Items -- millions Operating revenues ...................... $2,910 $2,752 $2,725 $2,727 $2,744 Operating income........................................ 556 574 501 563 573 Earnings available to PP&L Resources, Inc. (d)................................... 329 324 (c) 215 (c) 314 306 Balance Sheet Items -- millions (a) Property, plant and equipment, net....... 6,960 6,970 7,195 7,146 7,020 Total assets............................................ 9,371 9,424 9,321 9,454 8,192 Long-term debt.......................................... 2,832 2,859 2,941 2,663 2,627 Preferred and preference stock With sinking fund requirements........................ 295 295 295 335 326 Without sinking fund requirements..................... 171 171 171 171 224 Common equity........................................... 2,617 2,528 2,404 2,426 2,367 Short-term debt......................................... 10 89 74 202 159 Total capital provided by investors..................... 5,925 5,942 5,885 5,797 5,703 Capital lease obligations .............................. 247 220 225 249 251 Financial Ratios Return on average common equity -- % .... 12.95 13.10 8.83 13.06 13.11 Embedded cost rates (a) Long-term debt -- %................................... 7.89 7.95 8.07 8.63 9.36 Preferred and preference stock -- %................... 6.09 6.09 6.07 6.30 7.36 Times interest earned before...................................... income taxes.......................................... 3.62 3.58 2.73 3.33 3.18 Ratio of earnings to fixed charges -- total enterprise basis (b)............................ 3.50 3.48 2.70 3.31 3.15 Ratio of earnings to fixed charges and dividends on preferred and preference stock--total enterprise basis (b).................... 2.93 2.92 2.26 2.71 2.53 Revenue Data Average price per kwh billed for system sales - cents....................................... 7.22 7.10 7.14 7.27 7.39 Sales Data Customers(a)............................. 1,236,294 1,226,089 1,213,023 1,203,139 1,186,682 Electric energy sales billed -- millions of kwh Residential .......................................... 11,849 11,300 11,444 11,043 10,604 Commercial ........................................... 10,288 9,948 9,716 9,373 9,039 Industrial ........................................... 10,016 9,845 9,536 9,100 8,746 Other ................................................ 1,638 1,578 1,618 1,534 1,366 System sales ....................................... 33,791 32,671 32,314 31,050 29,755 Contractual sales to other major utilities .................................... 11,519 7,676 6,307 7,142 7,327 PJM energy sales ..................................... 1,338 2,358 3,158 4,142 5,160 Total electric energy sales billed ................. 46,648 42,705 41,779 42,334 42,242 Number of Full-Time Employees (a)......................... 6,428 6,661 7,431 7,677 7,882 (a) At year-end (b) Computed using earnings and fixed charges of PP&L and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals. (c) 1995 and 1994 earnings were affected by several one-time adjustments. See Financial Notes 3, 11, and 13. (d) Prior years restated to reflect formation of the holding company.
SHAREOWNER AND INVESTOR INFORMATION Annual Meetings: The annual meetings of shareowners of PP&L Resources and PP&L are held each year on the fourth Wednesday of April. The 1997 annual meetings will be held on Wednesday, April 23, 1997, at Lehigh University's Stabler Arena, at the Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem, PA. Proxy Material: A proxy statement and notice of PP&L Resources' and PP&L's annual meetings are mailed to all shareowners of record as of February 28, 1997. Dividends: The 1997 dates for consideration of the declaration of dividends by the board of directors or its finance committee are February 26, May 28, August 27 and November 26. Subject to the declaration, dividends are paid on the first day of April, July, October and January. Dividend checks are mailed in advance of those dates with the intention that they arrive as close as possible to the payment dates. The 1997 record dates for dividends are expected to be the 10th day of March, June, September and December. Direct Deposit of Dividends: Shareowners may choose to have their dividend checks deposited directly into their checking or savings account. Quarterly dividend payments are electronically credited on the dividend date, or the first business day thereafter. Dividend Reinvestment Plan: Shareowners may choose to have dividends on their PP&L Resources common stock or PP&L preferred stock reinvested in PP&L Resources common stock instead of receiving the dividend by check. Certificate Safekeeping: Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to PP&L for safekeeping. Lost Dividend or Interest Checks: Dividend or interest checks lost by investors, or those that may be lost in the mail, will be replaced if the check has not been located by the 10th business day following the payment date. Transfer of Stock or Bonds: Stock or bonds may be transferred from one name to another or to a new account in the name of another person. Please contact Investor Services regarding transfer instructions. Bondholder Information: Much of the information and many of the procedures detailed here for shareowners also apply to bondholders. Questions related to bondholder accounts should be directed to Investor Services. Lost Stock or Bond Certificates: Please contact Investor Services for an explanation of the procedure to replace lost stock or bond certificates. Publications: Several publications are prepared each year and sent to all investors of record and to others who request their names be placed on our mailing list. If your stock is held in street name and you wish to receive company information on a more timely basis, write, call or E-mail Investor Services at the addresses or number listed below. We will add your name to our direct mailing list. PP&L Resources Summary Annual Report -- published and mailed in mid-March to all shareowners of record. Shareowners' Newsletter -- an easy-to-read newsletter containing current items of interest to shareowners -- published and mailed at the beginning of each quarter. Quarterly Review -- published in May, July and October to provide quarterly financial information to investors. Periodic Mailings: Letters regarding new investor programs, special items of interest, or other pertinent information are mailed on a non-scheduled basis as necessary. Duplicate Mailings: The summary annual report and other investor publications are mailed to each investor account. If you have more than one account, or if there is more than one investor in your household, you may contact Investor Services to request that only one publication be delivered to your address. Please provide account numbers for all duplicate mailings. Investor Services: For any questions you have or additional information you require about PP&L Resources and its subsidiaries, please call the toll-free number listed below, or write to: George I. Kline Manager-Investor Services Pennsylvania Power & Light Co. Two North Ninth Street Allentown, PA 18101 Toll-Free Phone Number: For information regarding your investor account, or other inquiries, call toll-free: 1-800-345-3085. Internet Access: For updated information throughout the year, check out our home page at http://www.papl.com. You may also contact Investor Services via E-mail at invserv@papl.com. Security Analyst and Institutional Investor Inquiries: Members of the financial community seeking additional information may contact: Timothy J. Paukovits Investor Relations Manager Phone: (610) 774-4124 Fax: (610) 774-5106 E-mail: tjpaukovits@papl.com Listed Securities: Fiscal Agents: New York Stock Exchange Stock Transfer Agents and Registrars PP&L Resources, Inc.: Norwest Bank Minnesota, N.A. Common Stock (Code: PPL) Shareowner Services 161 North Concord Exchange Pennsylvania Power & Light Co.: South St. Paul, MN 55075 4-1/2% Preferred Stock (Code: PPLPRB) Pennsylvania Power & Light Co. 4.40% Series Preferred Stock Investor Services Department (Code: PPLPRA) Dividend Disbursing Office and Dividend Reinvestment Plan Agent Philadelphia Stock Exchange Pennsylvania Power & Light Co. PP&L Resources, Inc.: Investor Services Department Common Stock Mortgage Bond Trustee Bankers Trust Co. Pennsylvania Power & Light Co.: Attn: Security Transfer Unit 4-1/2% Preferred Stock P.O. Box 291569 3.35% Series Preferred Stock Nashville, TN 37229 4.40% Series Preferred Stock 4.60% Series Preferred Stock Bond Interest Paying Agent Pennsylvania Power & Light Co. Investor Services Department QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited) PP&L Resources, Inc. and Subsidiaries (Millions of Dollars, except per share data)
For the Quarters Ended (a) March 31 June 30 Sept. 30 Dec. 31 1996 Operating revenues...................... $789 $669 $715 $737 Operating income.............................. 176 120 136 124 Net income.................................... 116 61 79 73 Earnings per common share (b)................. 0.73 0.38 0.49 0.45 Dividends declared per common share (c)....... 0.4175 0.4175 0.4175 0.4175 Price per common share High........................................ 26 24 1/2 24 24 1/2 Low......................................... 23 1/2 22 21 5/8 21 7/8 1995 Operating revenues...................... $728 $609 $682 $733 Operating income.............................. 162 104 179 129 Net income.................................... 101 45 87 90 Earnings per common share (b)................. 0.65 0.28 0.55 0.56 Dividends declared per common share (c)....... 0.4175 0.4175 0.4175 0.4175 Price per common share High........................................ 20 7/8 19 7/8 23 1/2 26 1/2 Low......................................... 19 1/8 17 7/8 18 5/8 21 5/8 (a) PP&L's electric utility business is seasonal in nature with peak sales periods generally occurring in the winter months. In addition earnings in several quarters were affected by several one-time adjustments. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. (b) The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding. (c) PP&L Resources has paid quarterly cash dividends on its common stock in every year since 1946. The dividends paid per share in 1996 and 1995 were $1.67. The most recent regular quarterly dividend paid by PP&L Resources was 41.75 cents per share (equivalent to $1.67 per annum) paid January 1, 1997. Future dividends will be dependent upon future earnings, financial requirements and other factors.
QUARTERLY FINANCIAL DATA (Unaudited) Pennsylvania Power & Light Company and Subsidiaries (Millions of Dollars)
For the Quarters Ended (a) March 31 June 30 Sept. 30 Dec. 31 1996 Operating revenues.................. $789 $669 $715 $737 Operating income.......................... 176 120 136 124 Net income ............................... 125 69 86 77 Earnings available to PP&L Resources...... 118 62 79 70 1995 Operating revenues.................. $728 $609 $682 $733 Operating income.......................... 162 104 179 129 Net income ............................... 108 52 95 97 Earnings available to PP&L Resources...... 101 45 88 90 (a) PP&L's electric utility business is seasonal in nature with peak sales periods generally occurring in the winter months. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.
PP&L Resources, Inc. Pennsylvania Power & Light Company SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Deductions from Balance Additions Reserves - at Charges Losses or Balance at Beginning Charged to Other Expenses End of Description of Period to Income Accounts Applicable Period (Millions of Dollars) Year Ended December 31, 1996 Reserves deducted from assets in the Balance Sheet Uncollectible accounts ............................ $35 $20 $30 $25 Obsolete inventory - Materials and supplies........ 15 15 0 Year Ended December 31, 1995 Reserves deducted from assets in the Balance Sheet Uncollectible accounts ............................ 29 25 19 35 Obsolete inventory - Materials and supplies........ 0 15 15 Year Ended December 31, 1994 Reserves deducted from assets in the Balance Sheet Uncollectible accounts ............................ 29 17 17 29 Obsolete inventory - Materials and supplies........ 0 0
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information for this item concerning directors of PP&L Resources will be set forth in the sections entitled "Nominees for Directors" and "Directors Continuing in Office" in PP&L Resources' 1997 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1996, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PP&L Resources is set forth on page 19 through 20 of this report. Information for this item concerning directors of PP&L will be set forth in the sections entitled "Nominees for Directors" and "Directors Continuing in Office" in PP&L's 1997 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1996, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PP&L is set forth on page 19 through 20 of this report. ITEM 11. EXECUTIVE COMPENSATION Information for this item for PP&L Resources will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table" and "Retirement Plans for Executive Officers" in PP&L Resources' 1997 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1996, and which information is incorporated herein by reference. Information for this item for PP&L will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table" and "Retirement Plans for Executive Officers" in PP&L's 1997 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1996, and which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information for this item for PP&L Resources will be set forth in the section entitled "Stock Ownership" in PP&L Resources' 1997 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1996, and which information is incorporated herein by reference. Information for this item for PP&L will be set forth in the section entitled "Stock Ownership" in PP&L's 1997 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1996, and which information is incorporated herein by refer- ence. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements - included in response to Item 8. PP&L Resources, Inc. Report of Independent Accountants Independent Auditors' Report Consolidated Statement of Income for the Three Years Ended December 31, 1996 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1996 Consolidated Balance Sheet at December 31, 1996 and 1995 Consolidated Statement of Shareowners' Common Equity for the Three Years Ended December 31, 1996 Consolidated Statement of Preferred Stock at December 31, 1996 and 1995 Consolidated Statement of Long-Term Debt at December 31, 1996 and 1995 Notes to Financial Statements Pennsylvania Power & Light Company Report of Independent Accountants Independent Auditors' Report Consolidated Statement of Income for the Three Years Ended December 31, 1996 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1996 Consolidated Balance Sheet at December 31, 1996 and 1995 Consolidated Statement of Shareowners' Common Equity for the Three Years Ended December 31, 1996 Consolidated Statement of Preferred Stock at December 31, 1996 and 1995 Consolidated Statement of Long-Term Debt at December 31, 1996 and 1995 Notes to Financial Statements 2. Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8. Schedule II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 1996 All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. 3. Exhibits Exhibit Index on page 92. (b) Reports on Form 8-K: The following Reports on Form 8-K were filed during the three months ended December 31, 1996: Report dated December 6, 1996 and Amended on December 9, 1996 Item 5. Other Events Information regarding major provisions in the Pennsylvania legislation enacted to restructure the electric utility industry in order to create retail access to a competitive market for the generation of electricity. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. PP&L Resources, Inc. (Registrant) Pennsylvania Power & Light Company (Registrant) By /s/ William F. Hecht William F. Hecht - Chairman, President and Chief Executive Officer (PP&L Resources, Inc. and Pennsylvania Power & Light Company) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. TITLE By /s/ William F. Hecht Principal Executive William F. Hecht - Chairman, President Officer and Director and Chief Executive Officer (PP&L Resources, Inc. and Pennsylvania Power & Light Company) By /s/ R. E. Hill Principal Financial R. E. Hill - Senior Vice President- Officer Financial (PP&L Resources, Inc. and Pennsylvania Power & Light Company) By /s/ J. J. McCabe Chief Accounting J. J. McCabe - Vice President and Officer Controller(PP&L Resources, Inc. and Pennsylvania Power & Light Company) E. Allen Deaver Stuart Heydt William J. Flood Clifford L. Jones Elmer D. Gates Ruth Leventhal Derek C. Hathaway Francis A. Long Directors Norman Robertson By /s/ William F. Hecht William F. Hecht, Attorney-in-fact Date: February 28, 1997 EXHIBIT INDEX The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a # are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K. 3(a)-1 - Articles of Incorporation of Resources (Exhibit B to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) 3(a)-2 - Restated Articles of Incorporation of PP&L (Exhibit A to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) 3(b)-1 - By-laws of Resources (Exhibit 3.2 to Registration Statement No. 33-57949) 3(b)-2 - By-laws of PP&L (Exhibit 3(ii) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1993) 4(a)-1 - Amended and Restated Employee Stock Ownership Plan, dated October 26, 1988 (Exhibit 4(b) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1988) 4(a)-2 - Amendment No. 1 to said Employee Stock Ownership Plan, effective January 1, 1989 (Exhibit 4(b)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 4(a)-3 - Amendment No. 2 to said Employee Stock Ownership Plan, effective January 1, 1990 (Exhibit 4(b)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 4(a)-4 - Amendment No. 3 to said Employee Stock Ownership Plan, effective January 1, 1991 (Exhibit 4(b)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 4(a)-5 - Amendment No. 4 to said Employee Stock Ownership Plan, effective January 1, 1991 (Exhibit 4(a)-5 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-6 - Amendment No. 5 to said Employee Stock Ownership Plan, effective October 23, 1991 (Exhibit 4(a)-6 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-7 - Amendment No. 6 to said Employee Stock Ownership Plan, effective January 1, 1990 and January 1, 1992 (Exhibit 4(a)-7 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-8 - Amendment No. 7 to said Employee Stock Ownership Plan, effective January 1, 1992 (Exhibit 4(a)-8 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-9 - Amendment No. 8 to said Employee Stock Ownership Plan, effective July 1, 1992 (Exhibit 4(a)-9 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992) 4(a)-10 - Amendment No. 9 to said Employee Stock Ownership Plan, effective January 1, 1993 (Exhibit 4(a)-10 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992) 4(a)-11 - Amendment No. 10 to said Employee Stock Ownership Plan, effective January 1, 1993 (Exhibit 4(a)-11 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1993) 4(a)-12 - Amendment No. 11 to said Employee Stock Ownership Plan, effective January 1, 1994 (Exhibit 4(a)-12 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 4(a)-13 - Amendment No. 12 to said Employee Stock Ownership Plan, effective January 1, 1994 (Exhibit 4(a)-13 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 4(a)-14 - Amendment No. 13 to said Employee Stock Ownership Plan, effective April 27, 1995 (Exhibit 4(a)-14 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) 4(a)-15 - Amendment No. 14 to said Employee Stock Ownership Plan, effective January 1, 1989 and January 1, 1995 (Exhibit 4(a)-14 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 4(a)-16 - Amendment No. 15 to said Employee Stock Ownership Plan, effective October 25, 1995 (Exhibit 4(a)-16 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) *4(a)-17 - Amendment No. 16 to said Employee Stock Ownership Plan, effective January 1, 1989 *4(a)-18 - Amendment No. 17 to said Employee Stock Ownership Plan, effective January 1, 1996 4(b)-1 - Mortgage and Deed of Trust, dated as of October 1, 1945, between PP&L and Guaranty Trust Company of New York, as Trustee (now Bankers Trust Company, as successor Trustee) (Exhibit 2(a)-4 to Registration Statement No. 2-60291) 4(b)-2 - Supplement, dated as of July 1, 1954, to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement No. 219255) 4(b)-4 - Supplement, dated as of November 1, 1967, to said Mortgage and Deed of Trust (Exhibit 2(a)-14 to Registration Statement No. 2- 60291) 4(b)-5 - Supplement, dated as of January 1, 1969, to said Mortgage and Deed of Trust (Exhibit 2(a)-16 to Registration Statement No. 2- 60291) 4(b)-7 - Supplement, dated as of February 1, 1971, to said Mortgage and Deed of Trust (Exhibit 2(a)-19 to Registration Statement No. 2- 60291) 4(b)-9 - Supplement, dated as of January 1, 1973, to said Mortgage and Deed of Trust (Exhibit 2(a)-21 to Registration Statement No. 2- 60291) 4(b)-10 - Supplement, dated as of October 1, 1989, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated November 6, 1989) 4(b)-11 - Supplement, dated as of July 1, 1991, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated July 29, 1991) 4(b)-12 - Supplement, dated as of May 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated June 1, 1992) 4(b)-13 - Supplement, dated as of November 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PP&L's Form 10-K Report (File 1- 905) for the year ended December 31, 1992) 4(b)-14 - Supplement, dated as of February 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated February 16, 1993) 4(b)-15 - Supplement, dated as of April 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated April 30, 1993) 4(b)-16 - Supplement, dated as of June 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated July 7, 1993) 4(b)-17 - Supplement, dated as of October 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated October 29, 1993) 4(b)-18 - Supplement, dated as of February 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated March 11, 1994) 4(b)-19 - Supplement, dated as of March 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(b) to PP&L's Form 8-K Report (File No. 1- 905) dated March 11, 1994) 4(b)-20 - Supplement, dated as of March 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated March 30, 1994) 4(b)-21 - Supplement, dated as of September 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K (File No. 1-905) dated October 3, 1994) 4(b)-22 - Supplement, dated as of October 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1- 905) dated October 3, 1994) 4(b)-23 - Supplement, dated as of August 1, 1995, to said Mortgage and Deed of Trust (Exhibit 6(a) to PP&L's Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1995) 10(a) - Revolving Credit Agreement, dated as of August 30, 1994, between PP&L and the Banks named therein (Exhibit 10(a)-1 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 10(b) - Agreement, dated as of May 30, 1996, between PP&L Resources, Inc., Chemical Bank and Citibank, N.A. (Exhibit 10(a) to PP&L's Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1996) *10(c) - Credit Agreement, dated as of March 14, 1996, between PP&L and The First National Bank of Chicago 10(d) - Pollution Control Facilities Agreement, dated as of May 1, 1973, between PP&L and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No. 2-60834) 10(e)-1 - Interconnection Agreement, dated September 26, 1956, among Public Service Electric & Gas Company, Philadelphia Electric Company, PP&L, Baltimore Gas & Electric Company, Pennsylvania Electric Company, Metropolitan Edison Company, New Jersey Power & Light Company and Jersey Central Power & Light Company (Exhibit 5(e) to Registration Statement No. 2-60291) 10(e)-2 - Supplemental Agreement, dated April 1, 1974, to said Interconnection Agreement (Exhibit 5(f)-4 to Registration Statement No. 2-51312) 10(e)-3 - Supplemental Agreement, dated June 15, 1977, to said Interconnection Agreement (Exhibit 5(e)-5 to Registration Statement No. 2-60291) 10(e)-4 - Agreement of Settlement and Compromise, dated July 25, 1980, among the parties to said Interconnection Agreement (Exhibit 20(b)-8 to PP&L's Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1980) 10(e)-5 - Supplemental Agreement, dated March 26, 1981, to said Interconnection Agreement (Exhibit l0(b)-l0 to PP&L's Form l0-K Report (File No. 1-905) for the year ended December 31, 1981) 10(e)-6 - Revisions to Schedules 4.02, 7.01, and 9.01, all effective August 9, 1982, to said Interconnection Agreement (Exhibit 10(e)-11 to PP&L's Form l0-K Report (File No. l-905) for the year ended December 31, 1982) 10(e)-7 - Schedules 4.02, 5.01, 5.02, 5.04, 5.05, 6.01, 6.03, 6.04, 7.01, 7.02 7.03; all effective February 6, 1984, to said Interconnection Agreement (Exhibit 10(e)-8 to PP&L's Form l0-K Report (File No. 1-905) for the year ended December 31, 1985) 10(e)-8 - Schedule 5.03, Revision l, Exhibit A, revised May 31, 1985, to said Intercon- nection Agreement (Exhibit 10(e)-10 to PP&L's Form l0-K Report (File No. 1-905) for the year ended December 31, 1985) 10(e)-9 - Schedule 4.02, Revision No. 2, effective December 4, 1989, to said Interconnection Agreement (Exhibit 10(d)-13 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(e)-10 - Schedule 5.06, Revision No. 1, effective June 1, 1990, to said Interconnection Agreement (Exhibit 10(d)-14 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 10(e)-11 - Schedule 2.21, Revision No. 1, effective June 1, 1990, to said Interconnection Agreement (Exhibit 10(d)-15 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 10(e)-12 - Schedule 2.212, Revision No. 2, effective June 1, 1990, to said Interconnection Agreement (Exhibit 10(d)-16 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 10(e)-13 - Schedule 9.01, Revision No. 4, effective June 1, 1992, to said Interconnection Agreement (Exhibit 10(d)-18 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 10(e)-14 - Schedule 3.01, Revision No. 3, effective June 1, 1992, to said Interconnection Agreement (Exhibit 10(c)-15 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 10(e)-15 - Schedule 4.01, Revision No. 13, effective June 1, 1993, to said Interconnection Agreement (Exhibit 10(c)-15 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1993) 10(f) - Capacity and Energy Sales Agreement, dated June 29, 1983, between PP&L and Atlantic City Electric Company (Exhibit 10(f)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1983) 10(g)-1 - Capacity and Energy Sales Agreement, dated March 9, 1984, between PP&L and Jersey Central Power & Light Company (Exhibit l0(f)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1984) 10(g)-2 - First Supplement, effective February 28, 1986, to said Capacity and Energy Sales Agreement (Exhibit 10(e)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1986) 10(g)-3 - Second Supplement, effective January 1, 1987, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(g)-4 - Amendments to Exhibit A, effective October 1, 1987, to said Capacity and Energy Sales Agreement (Exhibit 10(e)-6 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987) 10(g)-5 - Third Supplement, effective December 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-5 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(g)-6 - Fourth Supplement, effective December 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-6 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(h)-1 - Capacity and Energy Sales Agreement, dated December 21, 1989, between PP&L and GPU Service Corporation (Exhibit 10(h) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(h)-2 - First Supplement, effective June 1, 1991, to said Capacity and Energy Sales Agreement (Exhibit 10(f)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 10(i)-1 - Capacity and Energy Sales Agreement, dated January 28, 1988, between PP&L and Baltimore Gas and Electric Company (Exhibit 10(e)-7 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987) 10(i)-2 - First Supplement, effective November 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(i)-3 - Second Supplement, effective June 1, 1989, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(i)-4 - Third Supplement, effective June 1, 1991, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) #10(j)-1 - Amended and Restated Directors Deferred Compensation Plan, effective July 1, 1995 (Exhibit C to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) *#10(j)-1 - Amendment No. 1 to said Amended and Restated Directors Deferred Compensation Plan, effective November 1, 1996 *#10(j)-2 - Amendment No. 2 to said Amended and Restated Directors Deferred Compensation Plan, effective January 1, 1997 #10(k) - Amended and Restated Directors Retirement Plan, effective April 27, 1995 (Exhibit 10(i) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) #10(l)-1 - Amended and Restated Deferred Compensation Plan for Executive Officers, effective January 1, 1990 (Exhibit 10(s) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) #10(l)-2 - Amendment No. 1 to said Officers Deferred Compensation Plan, effective January 1, 1991 (Exhibit 10(j)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) #10(l)-3 - Amendment No. 2 to said Officers Deferred Compensation Plan, effective October 23, 1991 (Exhibit 10(j)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) #10(l)-4 - Amendment No. 3 to said Officers Deferred Compensation Plan, effective January 1, 1992 and April 1, 1992 (Exhibit 10(j)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) #10(l)-5 - Amendment No. 4 to said Officers Deferred Compensation Plan, effective January 1, 1995 (Exhibit 10(j)-5 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) *10(l)-6 - Amendment No. 5 to said Officers Deferred Compensation Plan, effective January 1, 1996 #10(m) - Amended and Restated Supplemental Executive Retirement Plan, effective August 31, 1995 (Exhibit 10(k) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) *#10(m)-1 - Amendment No. 1 to said Amended and Restated Supplemental Executive Retirement Plan, effective July 1, 1996 #10(n) - Amended and Restated Executive Retirement Security Plan, effective August 31, 1995 (Exhibit 10(l) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) *#10(n)-1 - Amendment No. 1 to said Amended and Restated Executive Retirement Security Plan, effective January 1, 1996 #10(o)-1 - Amended and Restated Incentive Compensation Plan, effective January 1, 1995 (Exhibit D to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) #10(o)-2 - Amendment No. 1 to said Amended and Restated Incentive Compensation Plan, effective April 27, 1995 (Exhibit 10(m)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) *#10(o)-3 - Amendment No. 2 to said Amended and Restated Incentive Compensation Plan, effective January 1, 1996 *#10(o)-4 - Amendment No. 3 to said Amended and Restated Incentive Compensation Plan, effective January 1, 1997 *#10(p) - Description of Executive Compensation Incentive Award Program 1/ 10(q) - Nuclear Fuel Lease, dated as of February 1, 1982, between PP&L, as lessee, and Newton I. Waldman, not in his individual capacity, but solely as Cotrustee of the Pennsylvania Power & Light Energy Trust, as lessor (Exhibit 10(g) to PP&L's Form l0-K Report (File No. 1-905) for the year ended December 31, 1981) *12 - Computation of Ratio of Earnings to Fixed Charges *23(a) - Consent of Price Waterhouse LLP *23(b) - Consent of Deloitte & Touche LLP *24 - Power of Attorney *27 - Financial Data Schedule 1/ This description is provided pursuant to 17 C.F.R. Subsection 229.601(b)(10)(iii)(A). (PP&L LOGO APPEARS HERE) PP&L Resources, Inc. Two North Ninth Street * Allentown, PA 18101 Bulk Rate U.S. Postage PAID Allentown, PA. Permit No. 104 EX-4 2 AMENDMENT NO. 16 TO PENNSYLVANIA POWER & LIGHT COMPANY EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Employee Stock Ownership Plan ("Plan") effective January 1, 1975; and WHEREAS, the Plan was amended and restated effective Janu- ary 1, 1987, and subsequently amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended effective January 1, 1989 as follows: I. Effective January 1, 1989, the following sections of Arti- cle II are amended to read: 2.8 "Compensation" shall mean the following. (a) Compensation shall mean the annual compensation received by an Employee from the Company as reported on Internal Revenue Service Form W-2 or a successor form plus the Employee's elective deferrals under the Employee Savings Plan or Deferred Savings Plan; provided, however, that Compensation shall not include fringe benefits not normally included in compensation, such as tuition refunds, moving expenses, etc. and shall not, for purposes of allocation under Section 5.2(a), include any amount in excess of (i) for the 1975 and 1976 Plan Years, $16,000 and (ii) commencing with the 1977 Plan Year, the median annual com- pensation of all Participants during the Plan Year or $100,000, whichever is less. Such median compensation shall be determined as of the close of a Plan Year and shall be rounded to an even thousand dollars. (b) With respect to a Highly Compensated Eligible Employee who is one of the 10 most highly compensated employees of the Company and Affiliated Companies or a 5% owner, the Com- pensation of such individual plus the Compensation, if any, of his spouse and lineal descendants who have not attained age 19 before the close of the Plan Year, that is taken into account under the Plan, shall not exceed $200,000 as indexed (for Plan Years beginning on or after January 1, 1989 and before January 1, 1994), or $150,000 as indexed (for Plan Years beginning on or after January 1, 1994). This limit shall be allocated among family members in proportion to their Compensation as defined in Subsection (a). II. Except as provided for in this Amendment No. 16, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 16 is executed this 5th day of February, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear_________ John M. Chappelear Vice President-Investments & Pensions EX-4 3 AMENDMENT NO. 17 TO PENNSYLVANIA POWER & LIGHT COMPANY EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Employee Stock Ownership Plan ("Plan") effective January 1, 1975; and WHEREAS, the Plan was amended and restated effective Janu- ary 1, 1987, and subsequently amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended effective January 1, 1989 as follows: I. Effective January 1, 1996, the following sections of Articles II, III, V, VII, XII are amended to read: 2.3 "Affiliated Company" or "Affiliated Companies" shall mean (a) such subsidiaries of the Company (or companies under common control with the Company) which would qualify as includible corporations within the meaning of Section 1563(a) of the Code; (b) such trades or businesses under common control with the Company, as determined under Section 414(c) of the Code; and (c) such members of an affiliated service group, as determined under Section 414(m) of the Code, of which the Company is a mem- ber. "50% Affiliated Company" shall mean an Affiliated Company, but with the phrase "more than 50%" substituted for the phrase "at least 80%" of Section 1563(a) of the Code. 2.8 "Compensation" shall mean the following. (a) Compensation shall mean the annual compensation received by an Employee from the Company as reported on Internal Revenue Service Form W-2 or a successor form plus the Employee's elective deferrals under the Employee Savings Plan or Deferred Savings Plan; provided, however, that Compensation shall not include fringe benefits not normally included in compensation, such as tuition refunds, moving expenses, etc. and shall not, for purposes of allocation under Section 5.2(a), include any amount in excess of (i) for the 1975 and 1976 Plan Years, $16,000 and (ii) commencing with the 1977 Plan Year, the median annual com- pensation of all Participants during the Plan Year or $100,000, whichever is less. Such median compensation shall be determined as of the close of a Plan Year and shall be rounded to an even thousand dollars. For an MCP Employee, Compensation shall also include the full amount of any lump-sum award paid to the Partic- ipant from the fund credited with 2% of annualized base pay sala- ries for 1996. (b) With respect to a Highly Compensated Eligible Employee who is one of the 10 most highly compensated employees of the Company and Affiliated Companies or a 5% owner, the Compensation of such individual plus the Compensation, if any, of his spouse and lineal descendants who have not attained age 19 before the close of the Plan Year, that is taken into account under the Plan, shall not exceed $200,000 as indexed (for Plan Years beginning on or after January 1, 1989 and before January 1, 1994), or $150,000 as indexed (for Plan Years beginning on or after January 1, 1994). This limit shall be allocated among family members in proportion to their Compensation as defined in Subsection (a). 2.25 "MCP Employee" shall mean an Employee who is entitled to all benefits of the Managers Compensation Plan of the Company. 3.1 Eligibility. (a) All persons who were participants in the Plan immediately prior to the Effective Date and who are in the employ of the Company on the Effective Date shall be Participants hereunder as of such date. All Employees as of the Effective Date (but who are not eligible to participate under the preceding sentence) who have completed one year of Credited Service shall be Participants as of that date. Other Employees shall become Participants on the first day of the calendar month next following the date on which an Employee completes one year of Credited Service, or if later, on which an individual becomes an Employee. A "year of Credited Service," for the purposes of this Article, shall require completion of at least 1,000 Hours of Service during the 12 months from commencement of employment. An Employee who fails to complete 1,000 Hours of Service during his initial 12 months of employment shall complete a year of Credited Service as of the end of any Plan Year in which he completes 1,000 Hours of Service; provided, however, that the first Plan Year during which such Employee shall have the opportunity to complete such 1,000 Hours of Service shall include the anniversary of his commencement of employment. (b) An Employee may elect in writing not to become a Participant by filing such election with the Employee Benefit Plan Board. 5.5 Maximum Allocation. (m) For the purpose of this Section 5.5, "compensation" shall be defined in accordance with Section 415(c)(3) of the Code and regulations thereunder. 7.4 Disability. (a) If a Participant suffers a Total Disability prior to his termination of employment with the Company and all Affiliated Companies and is on inactive status on account of such Total Disability, the full amount of his interest in the Fund shall be paid to him or applied for his benefit upon Participant's consent in writing to such payment or application following the determination of his Total Disability in accordance with the provisions of this Article VII. 7.7 Timing of Distribution. (a) Subject to Subsection (b), a Participant entitled to receive benefits under this Article shall commence to receive benefits as soon as administratively practicable, but in no event shall any Participant receive benefits later than the earliest of the dates determined under (1), (2) or (3) below: (1) the 60th day after the close of the Plan Year in which occurs the later of (A) the Participant's attainment of age 65 or (B) the Participant's termination of employment with the Company and all Affiliated Companies; 12.7 Voting or Tendering Shares. Each Participant (or, in the event of his or her death, his or her beneficiary) is, for purposes of this Section 12.7, hereby designated a "named fidu- ciary," within the meaning of Section 403(a)(1) of ERISA with respect to his or her proportionate number of shares (such pro- portionate shares being determined at the respective times such fiduciary rights are exercisable, as set forth below). (a) Voting Rights. Each Participant (or beneficiary) shall have the right, to the extent of his or her proportionate number of shares (as determined in the last sentence of this Section 12.7(a)) to instruct the Trustee in writing as to the manner in which to vote such shares at any stockholders' meeting of the Company. The Company shall use its best efforts to timely distribute or cause to be distributed to each Participant (or beneficiary) the information distributed to stockholders of the Company in connection with any such stockholders' meeting, together with a form requesting confidential instructions to the Trustee on how such shares shall be voted on each such matter. Upon timely receipt of such instructions, the Trustee shall, on each such matter, vote as directed the appropriate number of shares (including fractional shares). The instructions received by the Trustee from individual Participants (or beneficiaries) shall be held by the Trustee in strict confidence and shall not be divulged to any person, including employees, officers and directors of the Company or any affiliate; provided, however, that, to the extent necessary for the operation of the Plan, such instructions may be relayed by the Trustee to a recordkeeper, auditor or other person providing services to the Plan if such person (i) is not the Company, an affiliate or any employee, officer or director thereof, and (ii) agrees not to divulge such directions to any other person, including employees, officers and directors of the Company and its affiliates. An individual's proportionate number of shares held in the trust shall be equal to the product of multiplying the total number of shares by a fraction, the numerator of which shall be the respective number of shares which are held in such individual's account for which he or she provides instructions to the Trustee and the denomina- tor of which shall be the number of such shares in all such accounts for which instructions are provided to the Trustee. II. Effective January 1, 1996, section 11.4 of Article XI is deleted. III. Except as provided for in this Amendment No. 17, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 17 is executed this 23rd day of May, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear_________ John M. Chappelear Vice President-Investments & Pensions EX-10 4 Exhibit 10(c) CREDIT AGREEMENT among PENNSYLVANIA POWER & LIGHT COMPANY, THE LENDERS, and THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent Dated as of March 14, 1996 TABLE OF CONTENTS ARTICLE I. DEFINITIONS ................................................ 1 ARTICLE II. THE CREDITS ............................................... 8 2.1. Commitment ................................................. 8 2.2. Required Payments; Termination ............................. 9 2.3. Ratable Loans .............................................. 9 2.4. Types of Advances .......................................... 9 2.5. Minimum Amount of Each Advance ............................. 9 2.6. Optional Principal Payments ................................ 9 2.7. Method of Selecting Types and Interest Periods for Initial Advances ........................................... 9 2.8. Conversion and Continuation of Advances .................... 10 2.9. Application of Interest Rates, etc. ........................ 10 2.10. Rates Applicable After Default ............................. 11 2.11. Method of Payment .......................................... 11 2.12. Telephonic Notices ......................................... 11 2.13. Interest Payment Dates; Interest Basis ..................... 12 2.14 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions .................................. 12 2.15. Lending Installations ...................................... 12 2.16. Non-Receipt of Funds by the Agent .......................... 13 2.17. Withholding Tax Exemption .................................. 13 ARTICLE III. CHANGE IN CIRCUMSTANCES .................................. 14 3.1. Yield Protection ........................................... 14 3.2. Changes in Capital Adequacy Regulations .................... 14 3.3. Availability of Types of Advances .......................... 15 3.4. Funding Indemnification .................................... 15 3.5. Lender Statements; Survival of Indemnity ................... 15 ARTICLE IV. CONDITIONS PRECEDENT ...................................... 16 ARTICLE V. REPRESENTATIONS AND WARRANTIES ............................. 17 5.1. Corporate Status ........................................... 17 5.2. Authority; No Conflict ..................................... 17 5.3. Legality, Etc. ............................................. 17 5.4. Financial Statements ....................................... 18 5.5. Litigation ................................................. 18 5.6. No Violation ............................................... 18 5.7. ERISA ...................................................... 18 5.8. Consents ................................................... 18 5.9. Subsidiaries ............................................... 18 5.10. Limitation Event ........................................... 19 5.11. Investment Company Act ..................................... 19 5.12. Public Utility Holding Company Act ......................... 19 ARTICLE VI. COVENANTS ................................................. 19 6.1. Financial Statements ....................................... 19 6.2. Mergers .................................................... 20 ARTICLE VII. DEFAULTS ................................................. 20 7.1. Representations, Etc. ...................................... 20 7.2. Principal and Interest ..................................... 20 7.3. Defaults Under Other Agreements............................. 20 7.4. Bankruptcy, Etc. ........................................... 21 7.5. Other Covenants ............................................ 21 ARTICLE VIII. AMENDMENTS; PRESERVATION OF RIGHTS ...................... 22 8.1. Amendments ................................................. 22 8.2. Preservation of Rights ..................................... 23 ARTICLE IX. GENERAL PROVISIONS ........................................ 23 9.1. Survival of Representations ................................ 23 9.2. Governmental Regulation .................................... 23 9.3. Taxes ...................................................... 23 9.4. Headings ................................................... 23 9.5. Entire Agreement ........................................... 24 9.6. Several Obligations; Benefits of this Agreement ............ 24 9.7. Expenses; Indemnification .................................. 24 9.8. Numbers of Documents ....................................... 24 9.9. Accounting ................................................. 24 9.10. Severability of Provisions ................................. 25 9.11. Nonliability of Lenders .................................... 25 9.12. Choice of Law .............................................. 25 9.13. Consent to Jurisdiction .................................... 25 9.14. Waiver of Jury Trial........................................ 26 9.15. Confidentiality ............................................ 26 ARTICLE X. THE AGENT .................................................. 26 10.1. Appointment ................................................ 26 10.2. Powers ..................................................... 26 10.3. General Immunity ........................................... 26 10.4. No Responsibility for Loans, Recitals, etc. ................ 26 10.5. Action on Instructions of Lenders .......................... 27 10.6. Employment of Agents and Counsel ........................... 27 10.7. Reliance on Documents; Counsel ............................. 27 10.8. Agent's Reimbursement and Indemnification .................. 27 10.9. Rights as a Lender ......................................... 28 10.10. Lender Credit Decision ..................................... 28 10.11. Successor Agent ............................................ 28 10.12. Agent's Fee ................................................ 29 ARTICLE XI. SETOFF; RATABLE PAYMENTS .................................. 29 11.1. Setoff ..................................................... 29 11.2. Ratable Payments ........................................... 29 ARTICLE XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS ........ 30 12.1. Successors and Assigns ..................................... 30 12.2. Participations.............................................. 30 12.2.1. Permitted Participants; Effect .................... 30 12.2.2. Voting Rights ..................................... 31 12.2.3. Benefit of Setoff ................................. 31 12.3. Assignments ................................................ 31 12.3.1. Permitted Assignments ............................. 31 12.3.2. Effect; Effective Date ............................ 31 12.4. Dissemination of Information ............................... 32 12.5. Tax Treatment .............................................. 32 ARTICLE XIII. NOTICES ................................................. 33 13.1. Giving Notice .............................................. 33 13.2. Change of Address .......................................... 33 ARTICLE XIV. COUNTERPARTS ............................................. 33 EXHIBITS EXHIBIT "A" - Note .................................................... 38 EXHIBIT "B" - Form of Opinion ......................................... 40 EXHIBIT "C" - Officer' Certificate ................................... 42 EXHIBIT "D" - Assignment Agreement .................................... 43 EXHIBIT "E" - Loan/credit Related Money Transfer Instruction .......... 54 PENNSYLVANIA POWER & LIGHT COMPANY TERM CREDIT AGREEMENT This Agreement, dated as of March 14, 1996, is among Pennsylvania Power & Light Company, the Lenders and The First National Bank of Chicago, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Advance" means, with respect to the Borrowing, a portion of the Borrowing accruing interest at a certain set or designated Rate Option and, in the case of a Eurodollar Advance, for a certain set or designated Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" means The First National Bank of Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. "Agreement" means this term credit agreement, as it may be amended or modified and in effect from time to time. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day or (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Applicable Margin" means: (I) from the date of this Agreement through the third anniversary thereof (a) at all times that the Borrower's First Mortgage Bond ratings are at Level I, .35%; (b) at all times that the Borrower's First Mortgage Bond ratings are at Level II, .40%; (c) at all times that the Borrower's First Mortgage Bond ratings are at Level III, .45%; (d) at all times that the Borrower's First Mortgage Bond ratings are at Level IV, .55%; and (e) at all times that the Borrower's First Mortgage Bond ratings are at Level V, .80%; and (II) after the third anniversary of the date of this Agreement (a) at all times that the Borrower's First Mortgage Bond ratings are at Level I, .45%; (b) at all times that the Borrower's First Mortgage Bond ratings are at Level II, .50%; (c) at all times that the Borrower's First Mortgage Bond ratings are at Level III, .55%; (d) at all times that the Borrower's First Mortgage Bond ratings are at Level IV, .65%; and (e) at all times that the Borrower's First Mortgage Bond ratings are at Level V, .90%. Each change in the Applicable Margin resulting from a change in the rating of the Borrower's First Mortgage Bonds by either rating agency shall take effect at the time such change in such rating is publicly announced by the relevant rating agency. At all times when either the Borrower has no First Mortgage Bonds or the Borrower's First Mortgage Bonds are not rated, the Borrower shall be deemed to be at Level V. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the Senior Vice President-Financial, Vice President-Finance, or Treasurer of the Borrower or any other Person designated in writing by the Treasurer of the Borrower, acting singly. "Borrower" means Pennsylvania Power & Light Company, a Pennsylvania corporation, and its permitted successors and assigns. "Borrowing" means the single borrowing made pursuant to Section 2.1 of this Agreement, consisting of the aggregate of the several extensions of credit provided by the Lenders, which borrowing bears interest at the Eurodollar Rate or the Floating Rate, or a combination thereof, as selected by the Borrower pursuant to Sections 2.7 and 2.8. "Borrowing Date" means the date on which the Borrowing is made hereunder. "Borrowing Notice" is defined in Section 2.7. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Commitment" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its signature below or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Conversion/Continuation Notice" is defined in Section 2.8. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Default" means an event described in Article VII. "Disclosure Documents" means, collectively, the Borrower's (i) Annual Report to the SEC on Form 10-K for the year 1994; (ii) Quarterly Reports to the SEC on Form 10-Q for the quarterly periods ended March 31, 1995, June 30, 1995, and September 30, 1995; (iii) Periodic Reports filed subsequent to the Borrower's Annual Report described in clause (i) above but prior to the the date of this Agreement; and (iv) if available to the Agent and the Lenders prior to the date of this Agreement, Annual Report to the SEC on Form 10-K for the year 1995. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which bears interest at a Eurodollar Rate. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the rate determined by the Agent to be the arithmetic average of the rates reported to the Agent by each Reference Bank as the rate at which deposits in U.S. dollars are offered by such Reference Bank to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of such Reference Bank's relevant Eurodollar Loan and having a maturity approximately equal to such Interest Period. If any Reference Bank fails to provide such quotation to the Agent, then the Agent shall determine the Eurodollar Base Rate on the basis of the quotations of the remaining Reference Bank(s). "Eurodollar Loan" means a Loan which bears interest at a Eurodollar Rate. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, a rate per annum equal to the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, if any, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Facility Termination Date" means March 14, 2001. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Floating Rate" means, for any day, a rate per annum equal to the Alternate Base Rate for such day, changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which bears interest at the Floating Rate. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three, or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three, or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third, or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third, or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender or the Agent. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Level" means any of Level I, Level II, Level III, Level IV, or Level V. "Level I" means, with respect to the Borrower's First Mortgage Bonds, a rating equal to or better than A- from S&P or A3 from Moody's. "Level II" means, with respect to the Borrower's First Mortgage Bonds, a rating equal to or better than BBB+ from S&P or Baa1 from Moody's but less than a rating that would place the Borrower at Level I. "Level III" means, with respect to the Borrower's First Mortgage Bonds, a rating equal to or better than BBB from S&P or Baa2 from Moody's but less than a rating that would place the Borrower at Level I or Level II. "Level IV" means, with respect to the Borrower's First Mortgage Bonds, a rating equal to or better than BBB- from S&P or Baa3 from Moody's but less than a rating that would place the Borrower at Level I, Level II or Level III. "Level V" means, with respect to the Borrower's First Mortgage Bonds, a rating equal to or lower than BB+ from S&P and Ba1 from Moody's. "Limitation Event" shall mean and include each of the following: (1) A nuclear incident (as that term is defined in 42 U.S.C. Section 2014 or any similar statute enacted in its place) involving or connected in any way with any facility of the Borrower utilizing nuclear fuel or any portion thereof shall have occurred, which nuclear incident may give rise to an aggregate liability, or to damage, destruction or personal injury, in excess of $50,000,000; or (2) Any facility of the Borrower utilizing nuclear fuel cannot be (in the good faith determination of the Borrower) used by the Borrower for a period of 12 months because (i) a necessary license or other necessary public authorization, order, consent or approval cannot be obtained or is revoked, withheld or suspended, (ii) the utilization of such license, authorization, order, consent or approval is made subject to specified conditions which cannot be met, (iii) an injunction has been entered enjoining the operation or materially impairing the use of such facility or (iv) such facility has suffered substantial damage (including, without limitation, contamination); or (3) There shall have occurred a loss of the title to, ownership of, or use and possession of, any facility of the Borrower utilizing nuclear fuel, or any substantial portion of such facility, as the result of, or in anticipation of, the exercise of any right of condemnation or eminent domain pursuant to any law, general or special, or by reason of the temporary or permanent requisition of such facility by any governmental authority (civil or military). "Loan" means, with respect to an individual Lender, the portion of an Advance to be provided by such Lender, calculated by multiplying the amount of such Advance by a percentage representing the ratio such Lender's Commitment bears to the Aggregate Commitment. "Loan Documents" means this Agreement and the Notes. "Moody's" means Moody's Investors Service, Inc., or any successor thereto. "Note" means a promissory note, in substantially the form of Exhibit "A" hereto, duly executed by the Borrower and payable to the order of a Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Notice of Assignment" is defined in Section 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under the Loan Documents. "Officer's Certificate" means a certificate, in substantially the form of Exhibit "C" hereto, duly executed by the Treasurer or another principal financial officer of the Borrower. "Participants" is defined in Section 12.2.1. "Payment Date" means the last day of each March, June, September and December. "Person" means any natural person, corporation, firm, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Purchasers" is defined in Section 12.3.1. "Rate Option" means the Eurodollar Rate or the Floating Rate. "Reference Banks" means First Chicago, Credit Suisse, and The Bank of New York. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Required Lenders" means Lenders in the aggregate having at least 66_% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66_% of the aggregate unpaid principal amount of the outstanding Advances. "Reset Date" means the effective date of a conversion or continuation of an Advance pursuant to Section 2.8, which shall be the effective date that a Rate Option and, with respect to a Eurodollar Advance, Interest Period of an Advance are set or designated under this Agreement. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities (as defined therein). "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or any successor thereto. "SEC" means the Securities and Exchange Commission. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS 2.1. Commitment. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make extensions of credit to the Borrower on the Borrowing Date in the form of loans in amounts not to exceed in the aggregate the amount of its Commitment. Upon the making of the initial Advances comprising the Borrowing hereunder and at all times thereafter, the Commitment of each Lender shall automatically reduce to the amount of Loans by such Lender then outstanding. The Borrower will use the proceeds of the Borrowing to refinance the principal and related call premium on the Borrower's $40,000,000 principal amount of 8.125% First Mortgage Bonds due June 1999 and $75,000,000 principal amount of 7.625% First Mortgage Bonds due 2002 and to pay expenses related to such refinancing. The Commitments to lend hereunder shall expire on the Facility Termination Date. Principal payments made hereunder may not be reborrowed. 2.2. Required Payments; Termination. Any outstanding Advances and all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date. 2.3. Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 2.4. Types of Advances. The Advances may be Floating Rate Advances, Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.7 and 2.8. 2.5. Minimum Amount of Each Advance. Each Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unutilized Aggregate Commitment. 2.6. Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon one Business Day's prior notice to the Agent. The Borrower may from time to time pay all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior notice to the Agent, subject to Section 3.4. 2.7. Method of Selecting Types and Interest Periods for Initial Advances. The Borrower shall select the Rate Option and, in the case of each Eurodollar Advance, the Interest Period applicable on the Borrowing Date to each initial Advance. The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) at least one Business Day before the Borrowing Date for each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, (ii) the aggregate amount of such Advance, (iii) the Rate Option selected for such Advance, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Chicago time) on the Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent's aforesaid address. 2.8. Conversion and Continuation of Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.5, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type (or, if more than one, Types) of Advances; provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, or three Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the requested Reset Date, specifying: (i) the Reset Date for such existing Advance, which shall be a Business Day; (ii) the aggregate amount of and Rate Option for the Advance which is to be converted or continued; and (iii) the amount(s) of new Advance(s) and Rate Option(s) into which such existing Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto. 2.9. Application of Interest Rates, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.8 to but excluding the date it becomes due or is converted into a Eurodollar Advance pursuant to Section 2.8 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Advance. No Interest Period may end after the Facility Termination Date. 2.10. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.7 or 2.8, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate otherwise applicable to the Floating Rate Advance plus 2% per annum. 2.11. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. 2.12. Telephonic Notices. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and Rate Options and to transfer funds based on telephonic notices made by any Authorized Officer. The Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.13. Interest Payment Dates; Interest Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on Floating Rate Advances shall be calculated for actual days elapsed on the basis of a 365- or 366-day year, as appropriate. Interest on Eurodollar Advances shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.14. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. Each Reference Bank agrees to furnish timely information for the purpose of determining the Eurodollar Rate. 2.15. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change the Lending Installation at which it books its Loans from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. Each Lender shall use its best efforts to minimize any additional cost (if any) to the Borrower as a result of a change of Lending Installation (including, if appropriate, a return to a prior Lending Installation at such time as the circumstances giving rise to a change of Lending Installation are no longer in effect), but no Lender shall be required to take or omit to take any action which action or omission would be economically or legally disadvantageous to such Lender. 2.16. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. 2.17. Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. Any such Lender that fails to provide appropriate forms or other documents to the Borrower and the Agent in accordance with this Section 2.17 agrees to indemnify the Borrower and the Agent in full for any costs, fines, penalties, or other liabilities imposed on either the Borrower or the Agent, or both, for any failure to withhold taxes. ARTICLE III CHANGE IN CIRCUMSTANCES 3.1. Yield Protection. If any change after the date of this Agreement in any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith, (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining interest rates applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by such Lender, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans and its Commitment. 3.2. Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk- based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then the Agent shall suspend the availability of the affected Type of Advance and require any Eurodollar Advances to be converted to Floating Rate Advances. 3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by one or more of the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. 3.5. Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance under Section 3.3, so long as such designation is not disadvantageous to such Lender. Each Lender shall deliver to the Borrower and the Agent a written statement of such Lender as to the amount due, if any, under Sections 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower of the written statement. The obligations of the Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT The Lenders shall not be required to fund the Borrowing hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders: 4.1. Copies of the articles of incorporation of the Borrower, together with all amendments, and a certificate of good standing, both certified by the appropriate governmental officer in its jurisdiction of incorporation. 4.2. Copies, certified by the Secretary or an Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Loan Documents. 4.3. An incumbency certificate, executed by the Secretary or an Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Loan Documents and to select Rate Options and Types of Advances hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. 4.4. A certificate, signed by the chief financial officer of the Borrower, stating that on the Borrowing Date the representations and warranties contained in Article V are true and correct and no Default or Unmatured Default has occurred and is continuing. 4.5. A written opinion of the Borrower's counsel, addressed to the Lenders in substantially the form of Exhibit "B" hereto. 4.6. Notes payable to the order of each of the Lenders. 4.7. Written money transfer instructions, in substantially the form of Exhibit "E" hereto, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. 4.8. Payment in full of all amounts due upon the execution of this Agreement. 4.9. Such other documents as any Lender or its counsel may have reasonably requested. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans provided for herein, the Borrower makes the following representations and warranties to the Lenders: 5.1. Corporate Status. The Borrower is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement and the Notes and to borrow hereunder. 5.2. Authority; No Conflict. The making and performance by the Borrower of this Agreement, and the Notes to be executed and delivered by it as contemplated by this Agreement, have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a part. 5.3. Legality, Etc. This Agreement constitutes and, when delivered, the Notes will constitute legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 5.4. Financial Statements. The financial statements of the Borrower for the year ended as at December 31, 1994 furnished to the Lenders, fairly present the financial position of the Borrower at December 31, 1994 and the results of its operations for the year then ended. Since that date there has been no adverse change in the business, assets, financial condition or operations of the Borrower which would materially and adversely affect the ability of the Borrower to perform any of its obligations hereunder or under the Notes. 5.5. Litigation. Except as disclosed in or contemplated by the Disclosure Documents furnished to the Lenders, no litigation, arbitration or administrative proceeding is pending or, to the knowledge of the Borrower, threatened, which, if determined adversely to the Borrower, would materially and adversely affect the ability of the Borrower to perform any of its obligations under this Agreement or the Notes. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of the Borrower, threatened which questions the validity of this Agreement or the Notes. 5.6. No Violation. No part of the proceeds of the Borrowing will be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulations G, U or X of said Board of Governors. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock". 5.7. ERISA. The issuance of the Notes hereunder will not cause the Borrower to be engaged in a "prohibited transaction," as such term is defined in Section 4975 of the Internal Revenue Code and there have not been any "reportable events," as that term is defined in Section 4043 of ERISA, which would result in a material liability to the Borrower. 5.8. Consents. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance of this Agreement by the Borrower and the execution and delivery of the Notes issued or proposed to be issued by the Borrower hereunder, except such authorizations, consents and approvals (including the approval of the Pennsylvania Public Utility Commission) as have been obtained prior to the making of any Loans and are in full force and effect at the time of the making of each Loan. 5.9. Subsidiaries. The assets of all Subsidiaries of the Borrower do not comprise in the aggregate more than 20% of the total consolidated assets of the Borrower. 5.10. Limitation Event. No Limitation Event has occurred with respect to the business, operation or condition (financial or otherwise) of the Borrower which materially and adversely affects the ability of the Borrower to perform any of its obligations hereunder or under the Notes. 5.11. Investment Company Act. Neither the Borrower nor any Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.12. Public Utility Holding Company Act. The Borrower is an "exempt holding company" within the meaning of the Act by virtue of Section 3(a)(2) thereof. Such exemption is in full force and effect. ARTICLE VI COVENANTS While this Agreement is in effect and until the Aggregate Commitment has been terminated and all Obligations hereunder and under the Notes shall have been paid in full, the Borrower agrees that: 6.1. Financial Statements. It will furnish to each Lender: (a) within 120 days after the end of each of its fiscal years an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year, prepared in conformity with generally accepted accounting principles, with an opinion expressed by Price Waterhouse LLP or other independent auditors of recognized standing selected by the Borrower; (b) within 60 days after the end of each of the first three quarters in each of the Borrower's fiscal years, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period, prepared in conformity with generally accepted accounting principles; (c) within 120 days after the end of each of its fiscal years, a copy of the Borrower's Form 10-K Report to the SEC and within 60 days after the end of the first three quarters in each of the Borrower's fiscal years, a copy of the Borrower's Form 10-Q Report to the SEC; provided, that the Borrower's obligations under this Section 6.1(c) may be satisfied by delivery of Forms 10-K and Forms 10-Q of a holding company of the Borrower, so long as such statements set forth separate information for the Borrower and its consolidated Subsidiaries; (d) from time to time, with reasonable promptness, such further information regarding the Borrower's business affairs and financial condition as such Lender may reasonably request; and (e) upon acquiring knowledge of the existence of an Unmatured Default or Default, the Borrower will promptly deliver to each Lender a certificate of a financial officer of the Borrower specifying: (i) the nature of such Unmatured Default or Default, (ii) the period of the existence thereof, and (iii) the actions that the Borrower proposes to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by an Officer's Certificate. 6.2. Mergers. It will not merge or consolidate (other than a merger or consolidation under which the Borrower is the surviving corporation) with any Person or, except in the ordinary course of its business, dispose of all or substantially all of its assets. ARTICLE VII DEFAULTS Upon the occurrence of any of the following events (each a "Default"): 7.1. Representations, Etc. Any certificate furnished by the Borrower to the Lenders pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by the Borrower herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 7.2. Principal and Interest. The Borrower shall fail to make any payment of principal on any Note when due or the Borrower shall fail to make any payment of interest on any Note or any other payment payable by the Borrower hereunder within 10 days of the due date thereof; or 7.3. Defaults Under Other Agreements. The Borrower shall default in the payment of the principal of or interest on any obligation (other than hereunder) for borrowed money beyond any period of grace provided with respect thereto and the aggregate amount of any such default or defaults shall exceed $10,000,000 during the term of this Agreement; or the Borrower shall default in the performance or observance of any other agreement, term or condition contained therein or in any other agreement or indenture pursuant to which any such obligation is created or by which it is secured for such period of time as would cause, or permit the holder or holders of such obligations (or a trustee or other Person on behalf of such holder or holders) to cause, such obligation to become due prior to its stated maturity or a portion thereof to be prepaid (other than by a regularly scheduled required prepayment) prior to such stated maturity and the aggregate amount of such obligation or obligations shall exceed $10,000,000 during the term of this Agreement; or 7.4. Bankruptcy, Etc. The Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower or such case is controverted but is not dismissed within 60 days after the commencement of the case; or the Borrower is not generally paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or the Borrower commences any other proceedings under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar laws of any jurisdiction whether now or hereafter in effect relating to the Borrower or there is commenced against the Borrower any such proceeding which remains undismissed for a period of 60 days or the Borrower is adjudicated insolvent or bankrupt; or the Borrower fails to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding is entered; or the Borrower by any act or failure to act indicates its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for its or any substantial part of its property or suffers any such appointment to continue undischarged or unstayed for a period of 60 days; or the Borrower makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower for the purpose of effecting any of the foregoing; or 7.5. Other Covenants. Either (a) the Borrower shall fail to perform its obligations under Section 6.1(e) and any such failure shall remain unremedied for a period of 30 days, or (b) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by the Borrower from the Agent or the Required Lenders; then, and in any such event, and at any time thereafter, if any Default shall then be continuing, either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Lenders, shall by written notice to the Borrower, declare the principal of and accrued interest in respect of all of the Notes to be, whereupon the same and all other amounts due hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the Notes to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Lenders, shall by written notice to the Borrower, declare the Aggregate Commitment terminated, whereupon the Commitment of each Lender and the obligation of each Lender to make its Loans hereunder shall terminate immediately; provided that if an Event of Default described in Section 7.4 shall occur, the result which would otherwise occur only upon the giving of written notice by the Agent to the Borrower as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Lenders to give such notice. If, within 14 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.4) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. ARTICLE VIII AMENDMENTS; PRESERVATION OF RIGHTS 8.1. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Extend the maturity of any Loan or Note or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Reduce the amount or extend the payment date for the mandatory payments required under Section 2.2, or increase the amount of the Commitment of any Lender hereunder, or permit the Borrower to assign its rights under this Agreement. (iv) Amend this Section 8.1. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. 8.2. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.1, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Taxes. Any taxes (excluding income taxes on the overall net income of any Lender) or other similar assessments or charges made by any governmental or revenue authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 9.4. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.5. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agent and the Lenders relating to the subject matter thereof. 9.6. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents, subject to the terms of that certain letter agreement between the Agent and the Borrower dated October 27, 1995. The Borrower also agrees to reimburse the Agent and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent and the Lenders, which attorneys may be employees of the Agent or the Lenders) paid or incurred by the Agent or any Lender in connection with the collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Agent and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder provided that such indemnification shall not extend to disputes among the Agent and the Lenders. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.8. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.9. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with generally accepted accounting principles, except that any determination which is to be made on a consolidated basis shall be made for the Borrower and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Borrower's audited financial statements. 9.10. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.11. Nonliability of Lenders. The relationship between the Borrower and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.13. CONSENT TO JURISDICTION. EACH OF THE BORROWER, THE AGENT, AND EACH LENDER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. IN THE EVENT THAT ANY SUCH UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO DOES NOT ACCEPT SUCH JURISDICTION, NOTHING HEREIN SHALL LIMIT THE RIGHT OF ANY PARTY HERETO TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.15. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, and (vi) permitted by Section 12.4. ARTICLE X THE AGENT 10.1. Appointment. The First National Bank of Chicago is hereby appointed Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the agent of such Lender. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement. 10.2. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent. 10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct. 10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent; (iv) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; or (v) the value, sufficiency, creation, perfection or priority of any interest in any collateral security. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Borrower for which the Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9. Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. 10.10. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.11. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders and with the consent of the Borrower (which shall not be unreasonably withheld or delayed), a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders and with the consent of the Borrower (which shall not be unreasonably withheld or delayed), a successor Agent. If the Agent has resigned and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the effectiveness of the resignation of the Agent, the resigning Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. 10.12. Agent's Fee. The Borrower agrees to pay to the Agent, for its own account, the fees agreed to by the Borrower and the Agent pursuant to that certain letter agreement dated October 27, 1995. ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrower or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. 12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases any guarantor of any such Loan or releases any substantial portion of collateral, if any, securing any such Loan. 12.2.3. Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3. Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents, provided that any such assignment shall be in a minimum amount equal to the lesser of the assigning Lender's Commitment or $10,000,000. Such assignment shall be substantially in the form of Exhibit "D" hereto or in such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit "I" to Exhibit "D" hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, and (ii) payment of a $3,500 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries, provided that each Transferee and prospective Transferee agrees to be bound by Section 9.15 of this Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.17. ARTICLE XIII NOTICES 13.1. Giving Notice. Except as otherwise permitted by Section 2.12 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). 13.2. Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written. PENNSYLVANIA POWER & LIGHT COMPANY By: _/s/ John R. Biggar_________________ John R. Biggar Vice President - Finance and Treasurer Two North Ninth Street Allentown, Pennsylvania 18101-1179 Attention: Treasurer Telecopier: (610) 774-5106 Commitments $25,000,000 THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By: __/s/ Kenneth J. Bauer_______________ Kenneth J. Bauer Authorized Agent One First National Plaza Chicago, Illinois 60670 Attention: Electric, Gas & Telecommunications Division Telecopier: (312) 732-3055 $24,000,000 CREDIT SUISSE By: __/s/ Andrea E. Shkane_______________ Print Name: Andrea E. Shkane_____________ Title: Member of Senior Management_______ By: __/s/ Thomas G. Muoio________________ Print Name: _Thomas G. Muoio_____________ Title: ______Associate___________________ 12 East 49th Street New York, New York 10017 Attention: Mid-Atlantic Group Telecopier: (212) 238-5389 $20,000,000 MELLON BANK By: __/s/ Mary Ellen Usher_______________ Mary Ellen Usher Vice President One Mellon Bank Center Room 4425 Pittsburgh, Pennsylvania 15258 Attention: Energy and Utilities Group Telecopier: (412) 234-8888 $10,000,000 THE BANK OF NEW YORK By: ____/s/ Nathan S. Howard____________ Print Name: __Nathan S. Howard__________ Title: ___Vice President________________ One Wall Street New York, New York 10286 Attention: Nathan Howard Vice President Telecopier: (212) 635-7923 $10,000,000 SANWA BANK By: ____/s/ Christian Kambour___________ Print Name: __Christian Kambour_________ Title: _______Assistant Vice President__ 55 East 52nd Street New York, New York 10055 Attention: _____________________________ Telecopier: (212) 754-1304 $10,000,000 TORONTO DOMINION (TEXAS), INC By: ___/s/_Diane_Bailey_________________ Print Name: ____Diane_Bailey____________ Title: _________Vice_President__________ 909 Fannin, Suite 1700 Houston, Texas 77010 Attention: Diane Bailey Telecopier: (713) 951-9921 $10,000,000 UNION BANK OF SWITZERLAND By: _/s/_Paul_R._Morrison________________ Print Name: __Paul_R._Morrison___________ Title: _______Vice_President_____________ By: __/s/_Robert_A._High_________________ Print Name: __Robert_A._High_____________ Title: _______Assistant_Treasurer________ 299 Park Avenue, 31st Floor New York, New York 10171-0026 Attention: Paul R. Morrison Telecopier: (212) 821-3878 $7,000,000 CHEMICAL BANK By: _____/s/_Jane_Ritchie_______________ Jane Ritchie Vice President 270 Park Avenue, 10th Floor New York, New York 10017-2070 Attention: Jane Ritchie Utilities Group Telecopier: (212) 270-5007 ____________ $116,000,000 EXHIBIT "A" NOTE $_____________ _______________, 19____ PENNSYLVANIA POWER & LIGHT COMPANY, a Pennsylvania corporation (the "Borrower"), promises to pay to the order of _____________________ (the "Lender") the lesser of the principal sum of _____________________ Dollars or the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Article II of the Credit Agreement (as the same may be amended or modified, the "Agreement") hereinafter referred to, in immediately available funds at the main office of The First National Bank of Chicago in Chicago, Illinois, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Credit Agreement, dated as of March 14, 1996 among the Borrower, The First National Bank of Chicago, individually and as Agent, and the lenders named therein, including the Lender, to which Agreement, as it may be amended from time to time, reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. PENNSYLVANIA POWER & LIGHT COMPANY By: _____________________________________ Print Name: _____________________________ Title: __________________________________ SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF PENNSYLVANIA POWER & LIGHT COMPANY DATED _______________________, 19____ Maturity Principal Maturity Principal Amount of of Interest Amount Unpaid ___Date___________Loan___________Period_____________Paid____________Balance___ EXHIBIT "B" FORM OF OPINION March 14, 1996 The Agent and the Lenders who are parties to the Credit Agreement described below. Gentlemen/Ladies: I am Senior Counsel of Pennsylvania Power & Light Company (the "Borrower"), and, as such, am familiar with the steps and proceedings taken by the Borrower in connection with its execution and delivery of a Term Credit Agreement among the Borrower, The First National Bank of Chicago, individually and as Agent, and the Lenders named therein, providing for Advances in an aggregate principal amount not exceeding $116,000,000 at any one time outstanding and dated as of March 14, 1996 (the "Agreement"). All capitalized terms used in this opinion and not otherwise defined shall have the meanings attributed to them in the Agreement. I have examined the Borrower's articles of incorporation, by-laws, resolutions, the Loan Documents and such other matters of fact and law which I deem necessary in order to render this opinion. Based upon the foregoing, it is my opinion that: l. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 2. The execution and delivery of the Loan Documents by the Borrower and the performance by the Borrower of the Obligations have been duly authorized by all necessary corporate action and proceedings on the part of the Borrower and will not: (a) require any consent of the Borrower's shareholders; (b) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or the Borrower's articles of incorporation or by-laws or any indenture, instrument or agreement binding upon the Borrower; or (c) result in, or require, the creation or imposition of any lien pursuant to the provisions of any indenture, instrument or agreement binding upon the Borrower. 3. The Loan Documents have been duly executed and delivered by the Borrower and constitute legal, valid and binding obligations of the Borrower enforceable in accordance with their terms except to the extent the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. 4. Except as set forth in the Borrower's Form 10-K Report to the Securities and Exchange Commission for the year ended December 31, 1994, there is no litigation or proceeding against the Borrower or any of its Subsidiaries which, if adversely determined, could reasonably be expected to have a material adverse effect on the financial condition of the Borrower or its ability to perform its obligations under the Loan Documents. 5. No approval, authorization, consent, adjudication or order of any governmental authority, which has not been obtained by the Borrower, is required to be obtained by the Borrower in connection with the execution and delivery of the Loan Documents, the borrowings under the Agreement or in connection with the payment by the Borrower of the Obligations. This opinion may be relied upon only by the Agent, the Lenders and their participants, assignees and other transferees. Very truly yours, Michael A. McGrail Senior Counsel EXHIBIT "C" OFFICER'S CERTIFICATE To: The Lenders parties to the Term Credit Agreement Described Below This Officer's Certificate is furnished pursuant to that certain Term Credit Agreement dated as of March 14, 1996 (as amended, modified, renewed or extended from time to time, the "Agreement") among the Borrower, the lenders party thereto and The First National Bank of Chicago, as Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Officer's Certificate have the meanings ascribed thereto in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected _____________________ of the Borrower; 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; and 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event: ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ The foregoing certifications are made and delivered this ____ day of ___ __________, 19___. ________________________________ EXHIBIT "D" ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between _______ _______________ (the "Assignor") and _______________________________(the "Assignee") is dated as of _________, 19__. The parties hereto agree as follows: 1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement (which, as it may be amended, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. 3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed to by the Agent) after a Notice of Assignment substantially in the form of Exhibit "I" attached hereto has been delivered to the Agent. Such Notice of Assignment must include any consents required to be delivered to the Agent by Section 12.3.1 of the Credit Agreement. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof are not made on the proposed Effective Date. The Assignor will notify the Assignee of the proposed Effective Date no later than the Business Day prior to the proposed Effective Date. As of the Effective Date, (i) the Assignee shall have the rights and obligations of a Lender under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder and (ii) the Assignor shall relinquish its rights and be released from its corresponding obligations under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder. 4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee shall be entitled to receive from the Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee shall advance funds directly to the Agent with respect to all Loans and reimbursement payments made on or after the Effective Date with respect to the interest assigned hereby. [In consideration for the sale and assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the Effective Date, an amount equal to the principal amount of the portion of all Floating Rate Loans assigned to the Assignee hereunder and (ii) with respect to each Eurodollar Loan made by the Assignor and assigned to the Assignee hereunder which is outstanding on the Effective Date, (a) on the last day of the Interest Period therefor or (b) on such earlier date agreed to by the Assignor and the Assignee or (c) on the date on which any such Eurodollar Loan either becomes due (by acceleration or otherwise) or is prepaid (the date as described in the foregoing clauses (a), (b) or (c) being hereinafter referred to as the "Payment Date"), the Assignee shall pay the Assignor an amount equal to the principal amount of the portion of such Eurodollar Loan assigned to the Assignee which is outstanding on the Payment Date. If the Assignor and the Assignee agree that the Payment Date for such Eurodollar Loan shall be the Effective Date, they shall agree to the interest rate applicable to the portion of such Loan assigned hereunder for the period from the Effective Date to the end of the existing Interest Period applicable to such Eurodollar Loan (the "Agreed Interest Rate") and any interest received by the Assignee in excess of the Agreed Interest Rate shall be remitted to the Assignor. In the event interest for the period from the Effective Date to but not including the Payment Date is not paid by the Borrower with respect to any Eurodollar Loan sold by the Assignor to the Assignee hereunder, the Assignee shall pay to the Assignor interest for such period on the portion of such Eurodollar Loan sold by the Assignor to the Assignee hereunder at the applicable rate provided by the Credit Agreement. In the event a prepayment of any Eurodollar Loan which is existing on the Payment Date and assigned by the Assignor to the Assignee hereunder occurs after the Payment Date but before the end of the Interest Period applicable to such Eurodollar Loan, the Assignee shall remit to the Assignor the excess of the prepayment penalty paid with respect to the portion of such Eurodollar Loan assigned to the Assignee hereunder over the amount which would have been paid if such prepayment penalty was calculated based on the Agreed Interest Rate. The Assignee will also promptly remit to the Assignor (i) any principal payments received from the Agent with respect to Eurodollar Loans prior to the Payment Date and (ii) any amounts of interest on Loans and fees received from the Agent which relate to the portion of the Loans assigned to the Assignee hereunder for periods prior to the Effective Date, in the case of Floating Rate Loans or fees, or the Payment Date, in the case of Eurodollar Loans, and not previously paid by the Assignee to the Assignor.]** In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. 5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a fee on each day on which a payment of interest is made under the Credit Agreement with respect to the amounts assigned to the Assignee hereunder (other than a payment of interest or commitment fees for the period prior to the Effective Date or, in the case of Eurodollar Loans, the Payment Date, which the Assignee is obligated to deliver to the Assignor pursuant to Section 4 hereof). The amount of such fee shall be the difference between (i) the interest paid with respect to the amounts assigned to the Assignee ___________ * Each Assignor may insert its standard payment provisions in lieu of the payment terms included in this Exhibit. hereunder and (ii) the interest or fee, as applicable, which would have been paid with respect to the amounts assigned to the Assignee hereunder if each interest rate was of 1% less than the interest rate paid by the Borrower. In addition, the Assignee agrees to pay % of the recordation fee required to be paid to the Agent in connection with this Assignment Agreement. 6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S LIABILITY. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Borrower or any guarantor, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Borrower or any guarantor, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the Property, books or records of the Borrower, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (v) agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, (vi) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes].** 8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement. 9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall have the right pursuant to Section 12.3.1 of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any entity or person, provided that (i) any such subsequent assignment does not violate any of the terms and conditions of the Loan Documents or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Loan Documents has been obtained and (ii) unless the prior written consent of the Assignor is obtained, the Assignee is not thereby released from its obligations to the Assignor hereunder, if any remain unsatisfied, including, without limitation, its obligations under Sections 4, 5 and 8 hereof. 10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate Commitment occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall remain the same, but the dollar amount purchased shall be recalculated based on the reduced Aggregate Commitment. 11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of Assignment embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 12. GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Illinois. 13. NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. ** to be inserted if the Assignee is not incorporated under the laws of the United States, or a state thereof. IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: ________________________________ Title: _____________________________ _____________________________ _____________________________ [NAME OF ASSIGNEE] By: ________________________________ Title: _____________________________ _____________________________ _____________________________ SCHEDULE 1 to Assignment Agreement 1. Description and Date of Credit Agreement: Term Credit Agreement dated March 14, 1996 by and among Pennsylvania Power & Light Company, The First National Bank of Chicago, individually and as Agent, and the Lenders party thereto. 2. Date of Assignment Agreement: _____________, 19__ 3. Amounts (As of Date of Item 2 above): a. Total of Commitments (Loans)* under Credit Agreement $______ b. Assignee's Percentage of Facility purchased under the Assignment Agreement** _______% c. Amount of Assigned Share in Facility purchased under the Assignment Agreement $______ 4. Assignee's Aggregate (Loan Amount)* Commitment Amount Purchased Hereunder: $______ 5. Proposed Effective Date: _______________ Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: __________________________________ By: _______________________________ Title: _______________________________ Title: ____________________________ * If a Commitment has been terminated, insert outstanding Loans in place of Commitment ** Percentage taken to 10 decimal places Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT Attach Assignor's Administrative Information Sheet, which must include notice address for the Assignor and the Assignee EXHIBIT "I" to Assignment Agreement NOTICE OF ASSIGNMENT ____________________, 19__ To: PENNSYLVANIA POWER & LIGHT COMPANY Two North Ninth Street Allentown, Pennsylvania 18101-1179 Attention: Treasurer THE FIRST NATIONAL BANK OF CHICAGO, as Agent One First National Plaza Chicago, Illinois 60670 Attention: Electric, Gas & Telecommunications Division From: [NAME OF ASSIGNOR] (the "Assignor") [NAME OF ASSIGNEE] (the "Assignee") 1. We refer to that Term Credit Agreement (the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. This Notice of Assignment (this "Notice") is given and delivered to the Borrower and the Agent pursuant to Section 12.3.2 of the Credit Agreement. 3. The Assignor and the Assignee have entered into an Assignment Agreement, dated as of , 19 (the "Assignment"), pursuant to which, among other things, the Assignor has sold, assigned, delegated and transferred to the Assignee, and the Assignee has purchased, accepted and assumed from the Assignor the percentage interest specified in Item 3 of Schedule 1 of all outstandings, rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period as agreed to by the Agent) after this Notice of Assignment and any consents and fees required by Sections 12.3.1 and 12.3.2 of the Credit Agreement have been delivered to the Agent, provided that the Effective Date shall not occur if any condition precedent agreed to by the Assignor and the Assignee has not been satisfied. 4. The Assignor and the Assignee hereby give to the Borrower and the Agent notice of the assignment and delegation referred to herein. The Assignor will confer with the Agent before the date specified in Item 5 of Schedule 1 to determine if the Assignment Agreement will become effective on such date pursuant to Section 3 hereof, and will confer with the Agent to determine the Effective Date pursuant to Section 3 hereof if it occurs thereafter. The Assignor shall notify the Agent if the Assignment Agreement does not become effective on any proposed Effective Date as a result of the failure to satisfy the conditions precedent agreed to by the Assignor and the Assignee. At the request of the Agent, the Assignor will give the Agent written confirmation of the satisfaction of the conditions precedent. 5. The Assignor or the Assignee shall pay to the Agent on or before the Effective Date the processing fee of $3,500 required by Section 12.3.2 of the Credit Agreement. 6. If Notes are outstanding on the Effective Date, the Assignor and the Assignee request and direct that the Agent prepare and cause the Borrower to execute and deliver new Notes or, as appropriate, replacements notes, to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee each agree to deliver to the Agent the original Note received by it from the Borrower upon its receipt of a new Note in the appropriate amount. 7. The Assignee advises the Agent that notice and payment instructions are set forth in the attachment to Schedule 1. 8. The Assignee hereby represents and warrants that none of the funds, monies, assets or other consideration being used to make the purchase pursuant to the Assignment are "plan assets" as defined under ERISA and that its rights, benefits, and interests in and under the Loan Documents will not be "plan assets" under ERISA. 9. The Assignee authorizes the Agent to act as its agent under the Loan Documents in accordance with the terms thereof. The Assignee acknowledges that the Agent has no duty to supply information with respect to the Borrower or the Loan Documents to the Assignee until the Assignee becomes a party to the Credit Agreement.* NAME OF ASSIGNOR NAME OF ASSIGNEE By:_____________________________ By: ___________________________________ Title: _________________________ Title: ________________________________ ACKNOWLEDGED AND CONSENTED TO ACKNOWLEDGED AND CONSENTED TO BY THE FIRST NATIONAL BANK OF BY PENNSYLVANIA POWER & LIGHT CHICAGO COMPANY By: ____________________________ By: ____________________________________ Title: _________________________ Title: _________________________________ [Attach photocopy of Schedule 1 to Assignment] * May be eliminated if Assignee is a party to the Credit Agreement prior to the Effective Date. EXHIBIT "E" LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION To The First National Bank of Chicago, as Agent (the "Agent") under the Credit Agreement Described Below. Re: Term Credit Agreement, dated March 14, 1996 (as the same may be amended or modified, the "Credit Agreement"), among Pennsylvania Power & Light Company (the "Borrower"), the Agent, and the Lenders named therein. Terms used herein and not otherwise defined shall have the meanings assigned thereto in the Credit Agreement. The Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Agent of a specific written revocation of such instructions by the Borrower, provided, however, that the Agent may otherwise transfer funds as hereafter directed in writing by the Borrower in accordance with Section 13.1 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.12 of the Credit Agreement. Facility Identification Number(s)__________________________________________ Customer/Account Name _____________________________________________________ Transfer Funds To _________________________________________________________ _______________________________________________________ _______________________________________________________ For Account No. ___________________________________________________________ Reference/Attention To ____________________________________________________ Authorized Officer (Customer Representative) Date ______________________ ______________________________ ______________________________________ (Please Print) Signature Bank Officer Name Date _________________________________ ______________________________ ______________________________________ (Please Print) Signature (Deliver Completed Form to Credit Support Staff For Immediate Processing) s:\coml\asg\pp&l96.ca EX-10 5 AMENDMENT NO. 1 TO PENNSYLVANIA POWER & LIGHT COMPANY DIRECTORS DEFERRED COMPENSATION PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Directors Deferred Compensation Plan ("Plan") effective January 26, 1972; and WHEREAS, the Plan was amended and restated effective April 26, 1995; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1997, Article 11(b) is deleted and the following sections of Articles II and XI are amended to read: 2. Definitions. (d) "Committee" means two or more directors, who have been designated by the Board to act as the Committee and who qualify as "non-employee directors," under the rules of the Securities and Exchange Commission issued pursuant to Section 16 of the Securities Exchange Act of 1934. 11. Termination or Amendment. (a) The Committee may, in its discretion, terminate or amend this Plan from time to time. In addition, the EBPB may make such amendments to the Plan as it deems necessary or desirable except those amendments which substantially increase the cost of the Plan to the Company or significantly alter the benefit design or eligibility requirements of the Plan. Notwithstanding the foregoing, the definitions of Mandatory Deferral Amount and Fair Market Value herein and Paragraph 7.1(a) hereof shall not be amended more often than once every six months other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. No termination or amendment shall (without Participant's consent) alter: a) Participant's right to payments of amounts previously credited to Participant's Accounts, which amounts shall continue to earn interest or accu- mulate dividends as provided for herein as though termination or amendment had not been effected, or b) the amount or times of payment of such amounts which have commenced prior to the effective date of such termination or amendment; provided, however, that no such consent may accelerate the Participant's payments. Notwithstanding the foregoing, if the Company is liquidated, the EBPB shall have the right to determine the Total Amount Payable under Paragraph 8 to Participant, and to cause the amount so determined to be paid in one or more installments or upon such other terms and conditions and at such other time (not beyond the time provided for herein) as the EBPB determines to be just and equitable. Any determinations made pursuant to the preceding sentence shall be consistent as to all Participants. II. Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 1 is executed this 17th day of December, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear__________ John M. Chappelear Chairman Employee Benefit Plan Board EX-10 6 Exhibit 10(j)-2 AMENDMENT NO. 2 TO PENNSYLVANIA POWER & LIGHT COMPANY DIRECTORS DEFERRED COMPENSATION PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Directors Deferred Compensation Plan ("Plan") effective January 26, 1972; and WHEREAS, the Plan was amended and restated effective April 26, 1995, and subsequently amended by Amendment No. 1; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1997, Articles VI, VII and XI are amended to read: 6. Deferred Cash Compensation. (a) Participant shall have the right to elect to have all, or a portion, of his Cash Compensation deferred hereunder, either to his Stock Account or his Cash Account and may change the allocation between such accounts of any such Cash Compensation so deferred. The amount of Cash Compensation credited to either the Stock Account or the Cash Account will be limited to the Cash Compensation earned after the date of the election. (d) Participant may revoke his election to defer Cash Compensation at any time by so notifying the EBPB in writing not later than December 31 of the year preced- ing the year for which the revocation will be effec- tive. For any subsequent calendar year, Participant may resume his election to defer if he files with the EBPB an election form not later than December 31 of the year preceding such subsequent calendar year. (f) Any election will be effective when actually received by PP&L's Payroll Section. 7.1 Stock Account. The Company shall maintain a Stock Account in the name of each Participant. Such Stock Account shall be maintained as follows: (a) The Company shall credit to Participant's Stock Account the number of Stock Units equal to the Mandatory Defer- ral Amount on the date such amount would otherwise be payable to such Participant, divided by the Fair Market Value of one share of Common Stock on such date. (b) The Company shall credit to Participant's Stock Account, the number of Stock Units equal to the amount of Deferred Cash Compensation elected by Participant to be credited to his Stock Account, divided by the Fair Market Value of one share of Common Stock on such date. (d) Subject to the limitations of Paragraph 5(b) and pro- vided that such an election is at least six months after the date of such Participant's last election, if any, to convert all or any portion of his Cash Account into interests in his Stock Account, a Participant may elect to convert all or any portion of his Stock Account into interests in such Participant's Cash Account by filing with the EBPB an election form. If such an election is made, the Participant's Cash Account shall be credited with an amount equal to the number of Stock Units being converted, multiplied by the Fair Market Value of one share of Common Stock on the date such amount is credited. 7.2 Cash Account. The Company shall maintain a Cash Account in the name of each Participant. Such Cash Account shall be maintained as follows: (a) The Company shall credit to Participant's Cash Account as of the same day on which the last Cash Compensation for the month would have been paid to said Participant an amount equal to the Deferred Cash Compensation elected by Participant to be credited to his Cash Account. (b) Participant's Cash Account shall be credited with interest monthly based on a rate of interest substan- tially equivalent to that applied on account balances in the Blended Interest Rate Fund in the Deferred Savings Plan or such other comparable fund as may be selected by the EBPB. (c) Provided that such an election is at least six months after the date of such Participant's last election, if any, to convert all or any portion of his Stock Account into interests in his Cash Account, a Participant may elect to convert all or any portion of his Cash Account into interests in such Participant's Stock Account by filing with the EBPB an election form. If such an election is made, the Participant's Stock Account shall be credited with a number of Stock Units equal to the Cash Account amount to be converted, divided by the Fair Market Value of one share of Common Stock on such date. 11. Termination or Amendment. (a) The Committee may, in its discretion, terminate or amend this Plan from time to time. In addition, the EBPB may make such amendments to the Plan as it deems necessary or desirable except those amendments which substantially increase the cost of the Plan to the Company or significantly alter the benefit design or eligibility requirements of the Plan. No termination or amendment shall (without Participant's consent) alter: a) Participant's right to payments of amounts previously credited to Participant's Accounts, which amounts shall continue to earn interest or accumulate dividends as provided for herein as though termination or amendment had not been effected, or b) the amount or times of payment of such amounts which have commenced prior to the effective date of such termination or amendment; provided, however, that no such consent may accelerate the Participant's payments. Notwithstanding the foregoing, if the Company is liquidated, the EBPB shall have the right to determine the Total Amount Payable under Paragraph 8 to Participant, and to cause the amount so determined to be paid in one or more installments or upon such other terms and conditions and at such other time (not beyond the time provided for herein) as the EBPB determines to be just and equitable. Any determinations made pursuant to the preceding sentence shall be consistent as to all Par- ticipants. II. Effective January 1, 1997, Article X Section (i) is deleted in its entirety. III. Except as provided for in this Amendment No. 2, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 2 is executed this 13th day of February, 1997. PENNSYLVANIA POWER & LIGHT COMPANY By:_/s/ John M. Chappelear________ John M. Chappelear Chairman Employee Benefit Plan Board EX-10 7 AMENDMENT NO. 5 TO PENNSYLVANIA POWER & LIGHT COMPANY OFFICERS DEFERRED COMPENSATION PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Officers Deferred Compensation Plan ("Plan") effective July 1, 1985; and WHEREAS, the Plan was amended and restated effective January 1, 1990, and subsequently amended by Amendment Nos. 1, 2, 3 and 4; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1996, Articles 6 and 7 are amended to read: 6. Payment of Account - General Provisions (a) The Total Amount Payable shall be payable to Participant: (i) if Participant becomes totally disabled while employed by the Company or an Affiliated Company, as determined by the EBPB in its discretion; (ii) if Participant retires from the Company and all Affiliated Companies under the Retirement Plan; or (iii) if Participant resigns or otherwise ceases employment with the Company and all Affiliated Companies; within thirty (30) days of such event or in the January of the calendar year following such event, as elected by Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred. If Participant has made no election, payments will commence within thirty (30) days after cessation of employment. (b) (i) The Total Amount Payable shall be paid to Participant in a single sum or in annual installments up to a maximum of fifteen (15) years, as elected by the Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred. (ii) All annual installments shall, except for the final payment, be not less than $5,000. To the extent necessary, the number of annual installments may be reduced to insure that annual installments are at least $5,000. (iii) The amount of each annual installment shall be determined by dividing the Total Amount Payable less any payments already made to Participant by the remaining number of annual installments to be made (i.e., a 10 year payout shall pay 1/10 of the Total Amount Payable as the first installment, 1/9 as the second annual installment, etc.). (c) (i) If Participant dies while employed by the Company or an Affiliated Company or before all installments have been paid under paragraph 5(b), payments shall be made within 30 days after Participant's death to the beneficiary designated in writing by Participant. Participant shall have a continuing power to designate a new beneficiary in the event of his death at any time prior to his death by written instrument delivered by Participant to the EBPB without the consent or approval of any person theretofore named as his beneficiary. In the event the designated beneficiary does not survive Participant, payment will be made to an alternate beneficiary designated in writing by Participant. If no such designation is in effect at the time of death of Participant, or if no person so designated shall survive Participant, payment shall be made to Participant's estate. (ii) Payments made to Participant's designated beneficiary will be made at the times and in the amounts as if Participant were living based on Participant's elected form of distribution; provided, however, if payments are to be made to Participant's estate, payment will be made in a single sum. 7. Supplemental Payments. (a) Upon his retirement under the Retirement Plan or the Company's Supplemental Executive Retirement Plan or upon his death while still employed by the Company or an Affiliated Company, Participant and/or his beneficiaries shall be paid a monthly supplemental retirement benefit (or supplemental pre-retirement spouse's annuity, as the case may be) equal to the difference, if any, between the benefit which would have been payable to him under such plan if the Participant's Deferred Cash Compensation had been included in the Participant's compensation for such plan and the benefit actually payable to the Participant and/or his beneficiaries thereunder. Such supplemental retirement benefit shall be payable in accordance with all the terms and conditions applicable to the Participant's or his beneficiary's benefit under the Retirement Plan, including any optional form of payment. If such supplemental retirement payments would be less than one hundred dollars ($100) per month, the EBPB, in its discretion, may elect to make such monthly supplemental retirement payments in such installments as the EBPB may determine or in a single lump-sum payment. Notwithstanding the foregoing, in the event that Participant's benefits under the Retirement Plan are subject to a qualified domestic relations order, any supplemental retirement benefits payable under this paragraph shall be calculated and made without regard to such order. II. Except as provided for in this Amendment No. 5, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 5 is executed this 16th day of May, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear_________ John M. Chappelear Chairman Employee Benefit Plan Board EX-10 8 AMENDMENT NO. 1 TO PENNSYLVANIA POWER & LIGHT COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Supplemental Executive Retirement Plan ("Plan") effective July 1, 1985; and WHEREAS, the Plan was amended and restated effective January 1, 1996; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective July 1, 1996, Articles 2, 3 and 4 are amended to read: 2. Definitions. (a) "Actuarial Equivalent" means having or that which has equal actuarial value to the Supplemental Executive Retirement Benefit based on the assumptions and factors described in Schedule A of the Retirement Plan. (b) "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries of the Company (or companies under common control with the Company) which are members of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code) as the Company. (c) "Board" means the Board of Directors of Pennsylvania Power & Light Company. (d) "Cause" for termination of Participant's employment means (i) the willful and continued failure by Participant to substantially perform Participant's duties with the Company or an Affiliated Company (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Participant by the Board, which demand specifically identifies the manner in which the Board believes that Participant has not substantially performed Participant's duties, or (ii) the willful engaging by Participant in conduct which is demonstrably and materially injurious to the Company or an Affiliated Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant's act, or failure to act, was in the best interest of the Company or Affiliated Company. In no event shall the termination of employment of any Participant be deemed to have been for Cause unless a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board) that, in the good faith opinion of the Board, Participant was guilty of conduct set forth in clauses (i) or (ii) of this definition, and specifying the particulars thereof in detail, is delivered to the executive. If at the time of determination, Participant is employed by an Affiliated Company, for purposes of this definition, the board of directors of such Affiliated Company shall be substituted for the Board. (e) "Change in Control" - means the occurrence of any one of the following events: (a) any change in the control of Resources of a nature that would be required to be reported in response to Item 1(a) of Form 8-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (b) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Resources and any new director (other than a director designated by a Person who has entered into an agreement with Resources to effect a transaction described in clause (a), (c) or (d) of this paragraph) whose election by the Board of Directors of Resources or nomination for election by the shareowners of Resources was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute at least a majority thereof; (c) any Person becomes the beneficial owner, directly or indirectly, of securities of Resources representing 20% or more of the combined voting power of Resources' then outstanding securities entitled to vote generally in the election of directors; (d) the approval by the shareowners of Resources of any merger or consolidation of Resources with any other corporation or a plan of complete liquidation of Resources or the sale or other disposition of all or substantially all of the assets of Resources to any other person or persons unless, after giving effect thereto, (1) holders of Resources' then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstanding stock entitled to vote generally in the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof and (2) the incumbent members of the Board of Directors of Resources as constituted immediately prior thereto shall constitute at least a majority of the directors of the continuing, surviving or transferee corporation and any parent thereof; or (e) the Board of Directors of Resources adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur. (f) "Company" means Pennsylvania Power & Light Company. (g) "Early Retirement Reduction Factor" means for Partici- pants between the ages of 50 and 60 the percentage that appears adjacent to his age below: Age at Benefit Percentage Commencement Applicable 60 100% 59 95% 58 90% 57 85% 56 80% 55 75% 54 70% 53 65% 52 60% 51 55% 50 50% Notwithstanding the preceding sentence, the percentage applicable to a Participant who qualifies for benefits pursuant to the Company's Displaced Managers Policy (SPM Policy 606) after completing at least one Year of Vesting Service shall be 100%, regardless of such Participant's age. (h) "EBPB" means the Employee Benefit Plan Board, the members of which are appointed by the Board. (i) "Officers Deferred Compensation Plan" means the Pennsylvania Power & Light Company Officers Deferred Compensation Plan, as amended from time to time. (j) "Participant" means an eligible officer or former officer of the Company entitled to receive benefits under this Plan. (k) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) Resources or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Resources or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of Resources in substantially the same proportions as their ownership of stock of Resources. (l) "Plan" means this Supplemental Executive Retirement Plan, as amended from time to time. (m) "Prior Plan" means any defined benefit plan, as defined in Section 3(35) of the Employee Retirement Income Security Act of 1974, as amended, which at any time satisfies the applicable requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended, provided that (i) such plan has a sponsor other than the Company, and (ii) Participant was a participant in such plan prior to employment with the Company. (n) "Projected Years of Service" means the number of full or partial twelve-month periods beginning on the date on which Participant attains the age of 30 and ending on the date Participant ceases to accrue benefits under the Retirement Plan. (o) "Resources" shall mean PP&L Resources, Inc. (p) "Retirement Plan" means the Retirement Plan of Pennsylvania Power & Light Company, as amended from time to time. (q) "SERB" means the Supplemental Executive Retirement Benefit payable under this Plan calculated under paragraph 4. (r) "Supplemental Final Average Earnings" means the following: (1) Participant's Final Average Earnings as determined under the Retirement Plan, determined as of the date the Participant terminates employment with the Company, except (A) using Cash Compensation (as defined by the Officers Deferred Compensation Plan) instead of Monthly Rate of Earnings (as defined by the Retirement Plan) and (B) increasing the amount of Cash Compensation for each month by the value of (i) any Awards (including any dividends distributed on Restricted Stock during the Restriction Period) granted to Participant under the Incentive Compensation Plan attributable to such month, and (ii) any cash grants awarded to Participant pursuant to the executive incentive awards program initially approved by the Board on October 25, 1989. For the purposes of determining the amount by which Cash Compensation is increased, the EBPB will determine (I) the value of any Award under the Incentive Compensation Plan as of the Award's Date of Grant (as defined by the Incentive Compensation Plan) and prorate such value over the year for which the Award was granted; (II) the amount of any dividends distributed on Restricted Stock during the Restriction Period and prorate such amount over the period for which such dividends are paid; and (III) the amount of any cash grant awarded under the executive incentive awards program and prorate such amount over the year for which the award was granted. (2) Notwithstanding any provision of the Retirement Plan to the contrary, the "Final Average Earnings" of a Participant who has less than 60 full consecutive months of employment shall be a reduced amount, equal to the difference of (A) minus (B), below. (A) (i) His total earnings as determined under Paragraph (r)(1)(A) and (B) above for his entire period of employment with a Participating Company, divided by (ii) the number of years the Participant was employed by a Participating Company, including any fraction of a full year thereof, calculated by dividing the total number of full consecutive months of employment by 12. (B) (i) The amount determined in (A) above, multiplied by (ii) the Reduction Factor in Appendix A which corresponds with the Participant's total number of full consecutive months of employment. (s) "Years of Service" means the number of full and partial years used to calculate Participant's accrued benefit under the Retirement Plan beginning at the Participant's age 30. (t) "Year(s) of Vesting Service" means the number of full years used to calculate Participant's vested interest in his accrued benefit under the Retirement Plan. 3. Eligibility. (a) All officers of the Company who are in positions in Company Salary Groups I through IV immediately prior to the date of their termination of employment from the Company or who were in such positions immediately prior to the date of their transfer to an Affiliated Company or death if earlier shall receive such benefits as they are entitled to under this Plan. Notwithstanding the foregoing, except for the death benefit provided for in paragraph 6 below, Participant shall have no right to receive any payment from this Plan and shall have no rights whatsoever regarding this Plan if such Participant: (i) terminates employment with the Company and all Affiliated Companies for any reason other than total disability, as determined by the EBPB in its sole discretion, prior to reaching age 50 and attaining 10 Years of Vesting Service, unless such Participant qualifies for benefits pursuant to the Company's Displaced Managers Policy (SPM Policy 606) after completing at least one Year of Vesting Service; or (ii) is terminated by the Company or an Affiliated Company for Cause. (b) All officers who are eligible for benefits under subsection (a) of Paragraph 3 of the Plan and who are entitled to annual benefits of at least $44,000 in the aggregate from all Company and Affiliated Company- sponsored pension, profit-sharing, savings or deferred compensation plans, shall terminate their employment with the Company and all Affiliated Companies no later than the first day of the month following attainment of age 65, unless the Company or Affiliated Company requests that employment be extended for up to one year. In such event, Participant must retire at the end of the extension, unless the Company or Affiliated Company requests additional extensions, at the end of which Participant must retire. Any Participant requested to serve beyond the mandatory retirement date may decline to do so without affecting his benefit status under this Plan or any other Company or Affiliated Company benefit program. Failure to accept benefits provided for in this Plan shall not affect the requirements of this paragraph. 4. Supplemental Executive Retirement Benefit. (a) Subject to paragraph 3(a) hereof, upon termination of employment from the Company and all Affiliated Companies, Participant will be paid a SERB subject to the terms and conditions of this Plan. The SERB for Participant shall be calculated as an annual amount payable for the life of Participant as follows: (b) the greater of (1) or (2): (1)(A) 2.7% of Participant's Supplemental Final Average Earnings times his Years of Service up to 20, plus (B) 1.0% of Participant's Supplemental Final Average Earnings times his Years of Service in excess of 20 but not more than 30 Years of Service, or (2)(A) 2.7% of Participant's Supplemental Final Average Earnings times his Projected Years of Service up to 20, plus (B) 1.0% of Participant's Supplemental Final Average Earnings times his Projected Years of Service in excess of 20 but not more than 30 Projected Years of Service, less (C) the annual amount payable to Participant from a Prior Plan, (c) less the annual amount payable as the maximum primary Social Security benefit payable to an individual aged 65 in the year of Participant's retirement whether or not received by Participant, (d) times the applicable Early Retirement Reduction Factor, (e) less annual amounts provided by the Retirement Plan (but not including any temporary supplemental amounts payable under Section 5.3(b) of the Retirement Plan) and supplemental payments under paragraph 7(a) of the Officers Deferred Compensation Plan. In the event Participant commences benefits under this Plan prior to commencing benefits under the Retirement Plan, deductions will be made under this subparagraph (e) as if Participant had commenced benefits under the Retirement Plan at the later of age 55 or commencement of benefits under this Plan. The amount of the deduction will not thereafter be changed upon Participant's actual commencement of benefits under the Retirement Plan. Appendix A # of Full Consecutive Months of Employment Reduction Factor (%) 60 0.0000 59 0.4167 58 0.8333 57 1.2500 56 1.6667 55 2.0833 54 2.5000 53 2.9167 52 3.3333 51 3.7500 50 4.1667 49 4.5833 48 5.0000 47 5.8333 46 6.6667 45 7.5000 44 8.3333 43 9.1667 42 10.0000 41 10.8333 40 11.6667 39 12.5000 38 13.3333 37 14.1667 36 15.0000 35 16.2500 34 17.5000 33 18.7500 32 20.0000 31 21.2500 30 22.5000 29 23.7500 28 25.0000 27 26.2500 26 27.5000 25 28.7500 24 30.0000 23 31.6667 22 33.3333 21 35.0000 20 36.6667 19 38.3333 18 40.0000 17 41.6667 16 43.3333 15 45.0000 14 46.6667 13 48.3333 12 50.0000 II. Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 1 is executed this 15th day of July, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear_________ John M. Chappelear Chairman Employee Benefit Plan Board EX-10 9 AMENDMENT NO. 1 TO PENNSYLVANIA POWER & LIGHT COMPANY EXECUTIVE RETIREMENT SECURITY PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Executive Retirement Security Plan ("Plan") effective January 1, 1987; and WHEREAS, the Plan was amended by Amended and Restated effective August 31, 1995; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1996, the following sections of Article II, III, IV, V, VI and XI are amended to read: 2.1 "Actuarial Equivalent" means having or that which has equal actuarial value to the Security Benefit based on the assumptions and factors described in Schedule A of the Retirement Plan. For purposes of Section 4.2(B) and calculating the present value of benefits to determine the value of any Lump Sum payable under the Plan, the Actuarial Equivalent will be based on an interest rate equal to the United States Government 30 year bond rate for the second month prior to retirement as published in the Federal Reserve Board Statistical Bulletin and the 1983 Group Annuity Mortality Table. 2.2 "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries of the Company (or companies under common control with the Company) which are members of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code) as the Company. 2.3 "Annual Base Salary" means the greater of Participant's annual base salary from the Company for the twelve months immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control. 2.4 "Board" means the Board of Directors of the Company. 2.5 "Bonus" means the higher of the average amount paid to Participant (including as an amount so paid any amount that would have been so paid but for Participant's request that the amount not be paid) pursuant to any bonus or incentive compensation plan or program of the Company ("Incentive Plans") with respect to the three years (or such shorter period for which Participant was covered under a Company sponsored bonus program) preceding the year in which the Date of Termination occurs or the average amount paid (in- cluding as an amount so paid any amount that would have been so paid but for Participant's request that the amount not be paid) with respect to the three years (or such shorter period for which Participant was covered under a Company sponsored bonus program) preceding the year in which the Change in Control occurs. 2.6 "Cause" for termination by the Company or an Affiliated Company of Participant's employment means (i) the willful and continued failure by Participant to substantially perform Participant's duties with the Company or an Affiliated Company (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Participant by the Board, which demand specifically identifies the manner in which the Board believes that Participant has not substantially performed Participant's duties, or (ii) the willful engaging by Participant in conduct which is demonstrably and materially injurious to the Company or an Affiliated Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act or failure to act, on Par- ticipant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant's act, or failure to act, was in the best interest of the Company or an Affiliated Company. In no event shall the termination of employment of any Participant be deemed to have been for Cause unless a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board) that, in the good faith opinion of the Board, Participant was guilty of conduct set forth in clauses (i) or (ii) of this definition, and specifying the particulars thereof in detail, is delivered to the executive. If at the time of determination, Participant is employed by an Affiliated Company, for purposes of this definition and Section 5.1, the board of directors of such Affiliated Company shall be substituted for the Board. 2.7 "Change in Control" means the occurrence of any one of the following events: (a) any change in the control of Re- sources of a nature that would be required to be reported in response to Item 1(a) of Form 8-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (b) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board of Resources and any new director (other than a director designated by a Person who has entered into an agreement with Resources to effect a transaction described in clause (a), (c) or (d) of this paragraph) whose election by the Board of Directors of Resources or nomination for election by Resources' shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute at least a majority thereof; (c) any Person becomes the beneficial owner, directly or indirectly, of securities of Resources representing 20% or more of the combined voting power of Resources' then outstanding securities entitled to vote generally in the election of directors; (d) the approval by the shareowners of Resources of any merger or consolidation of Resources with any other corporation or a plan of complete liquidation of Resources or the sale or other dis- position of all or substantially all of the assets of Re- sources to any other person or persons unless, after giving effect thereto, (1) holders of Resources' then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstanding stock entitled to vote generally in the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof and (2) the incumbent members of the Board of Directors of Resources as constituted immediately prior thereto shall constitute at least a majority of the di- rectors of the continuing, surviving or transferee corpora- tion and any parent thereof; or (e) the Board of Directors of Resources adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur. 2.8 "Company" means Pennsylvania Power & Light Company. 2.9 "Continuation of Coverage" means the benefit provided under Section 4.3. 2.10 "Date of Termination" has the meaning set forth in Section 5.2. 2.11 "Disability" shall be deemed the reason for the termination by the Company or Affiliated Company of Participant's em- ployment, if, as a result of Participant's incapacity due to physical or mental illness, Participant shall qualify for coverage under the Company's or Affiliated Company's Long- Term Disability Plan in effect immediately prior to a Change in Control, the Company or Affiliated Company shall have given Participant a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, Participant shall not have returned to the full-time performance of Participant's duties. 2.12 "EBPB" means the Employee Benefit Plan Board, the members of which are appointed by the Board. 2.13 "Good Reason" for termination of Participant's employment with the Company or an Affiliated Company by such Participant means the occurrence (without Participant's ex- press written consent) of any one of the following acts by the Company or an Affiliated Company: (a) the assignment to Participant of any duties inconsis- tent with Participant's status as an executive officer or key employee of the Company or an Affiliated Company or a substantial adverse alteration in the nature or status of Participant's responsibilities from those in effect imme- diately prior to a Change in Control; (b) a reduction by the Company or Affiliated Company of Participant's annual base salary as in effect on the Effective Date of this restated Plan, or as the same may be increased from time to time; (c) the relocation of the Participant's principal work location to a location more than 30 miles from such work location immediately prior to a Change in Control; (d) the failure by the Company or Affiliated Company to pay to Participant any portion of Participant's current compen- sation or to pay to Participant any portion of an install- ment of deferred compensation under any deferred com- pensation program of the Company or Affiliated Company, within seven (7) days of the date such compensation is due; (e) the failure by the Company or Affiliated Company to continue in effect any compensation or benefit plan in which Participant participates immediately prior to a Change in Control which is material to Participant's total compensa- tion, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company or Affiliated Company to continue Participant's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Participant's participation relative to other participants, as existed at the time of a Change in Control, or (f) the failure by the Company or Affiliated Company to continue to provide Participant with benefits substantially similar to those enjoyed by Participant under any of the Company's or Affiliated Company's pension, retirement, savings, life insurance, medical, health and accident, or disability plans in which Participant was participating immediately prior to a Change in Control, the taking of any action by the Company or Affiliated Company which would directly or indirectly materially reduce any of such bene- fits or deprive Participant of any material fringe benefit enjoyed by Participant immediately prior to a Change in Control, or the failure by the Company or Affiliated Company to provide Participant with the number of paid vacation days to which Participant is entitled on the basis of years of service with the Company or Affiliated Company in accordance with the Company's or Affiliated Company's normal vacation policy in effect immediately prior to a Change in Control. Participant's right to terminate his or her employment with the Company or Affiliated Company for Good Reason shall not be affected by Participant's incapacity due to physical or mental illness. Participant's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 2.14 "Lump Sum" has the meaning set forth in Section 7.3. 2.15 "Notice of Termination" has the meaning set forth in Section 5.1. 2.16 "Officers Deferred Compensation Plan" means the Pennsylvania Power & Light Company Officers Deferred Compensation Plan, as amended from time to time. 2.17 "Participant" means an eligible officer of the Company, or a former eligible officer of the Company who was transferred to an Affiliated Company within six months prior to a Change in Control, entitled to receive benefits under this Plan under Article III. 2.18 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) Resources or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Resources or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of Resources in substantially the same proportions as their ownership of stock of Resources. 2.19 "Plan" means this Executive Retirement Security Plan, as amended from time to time. 2.20 "Potential Change in Control" means the occurrence of any one of the following events or conditions: (a) Resources enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (b) any Person publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (c) any Person is or becomes the beneficial owner, directly or indirectly, of securities of Resources representing 5% or more of the combined voting power of Resources' then out- standing securities entitled to vote generally in the election of directors. (d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 2.22 "Projected Years of Service" means the number of full or partial twelve-month periods beginning on the date on which a Participant attains the age of 30 and ending on the date a Participant ceases to accrue benefits under the Retirement Plan. 2.23 "Resources" shall mean PP&L Resources, Inc. 2.24 "Retirement Plan" means The Retirement Plan of Pennsylvania Power & Light Company, as amended from time to time. 2.25 "Security Benefit" means the security benefit payable under this Plan calculated under Article IV. 2.26 "SERP" means the Pennsylvania Power & Light Supplemental Executive Retirement Plan, as amended from time to time. 2.27 "Supplemental Final Average Earnings" means twelve times the monthly average of a Participant's Cash Compensation (as defined by the Officers Deferred Compensation Plan) for the 12 full consecutive months in the final 60 (or fewer) full consecutive months of employment with the Company which yield the highest average. For this purpose, non- consecutive months interrupted by periods in which the Participant receives no Cash Compensation shall be treated as consecutive. If a Participant does not have 12 full consecutive months of employment with the Company, his Supplemental Final Average Earnings shall be the total of the Cash Compensation earned for the number of months of employment. The amount of Cash Compensation for each month shall be increased by the value of (1) any Awards (including any dividends distributed on Restricted Stock during the Restriction Period) granted to Participant under the Incentive Compensation Plan attributable to such month, and (2) any cash grants awarded to Participant pursuant to the executive incentive awards program initially approved by the Board on October 25, 1989. For the purpose of determining the amount by which Cash Compensation is increased, the EBPB will determine (a) the value of any Award under the Incen- tive Compensation Plan prorated over the 12 consecutive month period for which the Award was granted; (b) the amount of any dividends distributed on Restricted Stock during the Restriction Period and prorate such amount over the period for which such dividends are paid; and (c) the amount of any cash grant awarded under the executive incentive awards program and prorate such amount over the 12 consecutive month period for which the Award was granted. 2.28 "Years of Service" means the number of full and partial years used to calculate Participant's accrued benefit under the Retirement Plan, beginning at the Participant's age 30. 3.1 All officers of the Company (i) who are in positions in Company Salary Grades I through IV any time within six months prior to the occurrence of a Change in Control and (ii) whose employment with the Company or an Affiliated Company is terminated either (A) by the Company or Affiliated Company for any reason other than for Cause or Disability, or (B) by Participant for Good Reason, in either case within three (3) years following a Change in Control, shall be entitled to receive benefits under this Plan. Participant's employment shall be deemed to have been ter- minated following a Change in Control by the Company or an Affiliated Company without Cause or by Participant for Good Reason if Participant's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Resources the consummation of which will constitute a Change in Control or if Participant terminates his employment with Good Reason prior to a Change in Control (determined by treating a Po- tential Change in Control as a Change in Control in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. 4.2 The Security Benefit for Participant shall be calculated as an annual amount payable for the life of Participant (except as otherwise provided in Section 7.3, below), equal to the greater of (a) or (b) as follows: (a) (1) minus (2): (1) the greater of (A) or (B) (A) (i) 2.7% of Participant's Supplemental Final Average Earnings times his Years of Service up to 20, plus (ii) 1.0% of Participant's Supplemental Final Average Earnings times his Years of Service in excess of 20 but not more than 30 Years of Service, or (B) (i) 2.7% of Participant's Supplemental Final Average Earnings times his Projected Years of Service up to 20, plus (ii) 1.0% of Participant's Supplemental Final Average Earnings times his Projected Years of Service in excess of 20 but not more than 30 Projected Years of Service, less (iii) the annual amount payable to a Participant from Prior Plan, (2) (A) the annual amount payable as the maximum primary Social Security benefit payable to an individual aged 65 in the year of Participant's retirement whether or not received by Participant, (B) the annual amount provided by the Retirement Plan and supplemental payments under paragraph 7(a) of the Officers Deferred Compensation Plan, and (C) the annual amount payable to a Participant from the SERP. or (b) (1) For Participants in Company Salary Grades I, II or III anytime within six months prior to a Change in Control, an annual payment for the life of the Participant, the Actuarial Equivalent of which is equal to the product of (i) the sum of such Participant's Annual Base Salary and Bonus and (ii) a factor of three (3), or (2) For Participants in Company Salary Grade IV anytime within six months prior to a Change in Control, an annual payment for the life of the Participant, the Actuarial Equivalent of which is equal to the product of (i) the sum of such Participant's Annual Base Salary and Bonus and (ii) a factor of two (2). In the event the Participant commences benefits on or after age 50, the Security Benefit calculated pursuant to Section 4.2(a) shall be unreduced. In the event the Participant commences benefits prior to attainment of age 50, the Security Benefit shall be calculated pursuant to Section 4.2(a), as a benefit payable for the life of the Participant commencing at the Participant's age 50, using the Participant's Years of Service on the Date of Termination, and then reduced on an Actuarially Equivalent basis from age 50 to reflect the actual benefit commencement date. 5.2 "Date of Termination", with respect to any purported ter- mination of the Participant's employment after a Change in Control, shall mean (i) if the Participant's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Participant shall not have returned to the full-time performance of Participant's duties during such thirty (30) day period), and (ii) if the Participant's employment is terminated for any other rea- son, the date specified in the Notice of Termination (which, in the case of a termination by the Company or an Affiliated Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by Participant, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 5.4 If a purported termination occurs following a Change in Control, and such termination is disputed in accordance with Section 5.3 hereof, the Company or Affiliated Company shall continue to pay Participant the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue Participant as a participant in all compensation, benefit and insurance plans in which Participant was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 5.3 hereof. Amounts paid under this Section 5.4 are in addition to all other amounts due under this Plan and shall not be offset against or reduce any other amounts due under this Plan. 6.1 Security Benefit payments (including payment of the Lump Sum, if applicable) shall begin as soon as practicable fol- lowing the Participant's termination of employment with the Company and all Affiliated Companies. 11.1 Notwithstanding any other provisions of this Plan to the contrary, in the event that any payment or benefit received or to be received by Participant in connection with a Change in Control or the termination of Participant's employment (whether pursuant to the terms of this Plan or any other plan, arrangement or agreement with the Company or Affiliated Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (all such payments and benefits, including under the Plan, being hereinafter called "Total Payments") would be subject (in whole or part), to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Security Benefit shall be reduced to the extent necessary so that no portion of the Total Payments is sub- ject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) if, and only if (A) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of feder- al, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which Participant would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Participant shall have effectively waived in writing prior to the date of Participant's termination of employment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable com- pensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount (within the meaning of Section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Prior to the payment of benefits under the Plan, the Company shall provide Participant with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for Participant to evaluate the Company's calculations. II. Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 1 is executed this 16th day of May, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear_____________ John M. Chappelear Chairman Employee Benefit Plan Board EX-10 10 AMENDMENT NO. 2 TO PENNSYLVANIA POWER & LIGHT COMPANY INCENTIVE COMPENSATION PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Incentive Compen- sation Plan ("Plan") effective January 1, 1987; and WHEREAS, the Plan was amended and restated effective July 1, 1992, and subsequently amended by Amendment No. 1; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1996, the following sections are amended to read: SECTION 1. PURPOSE OF THE PLAN. The purpose of the Incentive Compensation Plan (the "Plan") is to provide a method whereby officers and other key employees of Pennsylvania Power & Light Company (the "Company") and Affili- ated Companies may be awarded additional remuneration for per- formance in meeting specific Company objectives in a form that increases their ownership interest and encourages them to remain in the employ of the Company or an Affiliated Company. SECTION 2. DEFINITIONS. "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries of the Company (or companies under common control with the Company) which are members of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code) as the Company. "Cause" for termination by the Company or an Affiliated Company of Participant's employment means (i) the willful and continued failure by Participant to substantially perform Partic- ipant's duties with the Company or an Affiliated Company (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for sub- stantial performance is delivered to Participant by the Board of Directors of PP&L, which demand specifically identifies the man- ner in which the Board of Directors of PP&L believes that Par- ticipant has not substantially performed Participant's duties, or (ii) the willful engaging by Participant in conduct which is demonstrably and materially injurious to the Company or an Affil- iated Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant's act, or failure to act, was in the best interest of the Company or an Affiliated Company. In no event shall the termination of employment of any Participant be deemed to have been for Cause unless a copy of a resolution duly adopted by the affirmative vote of not less than three quar- ters (3/4) of the entire membership of the Board of Directors of PP&L at a meeting of the Board of Directors of PP&L which was called and held for the purpose of considering such termination (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors of PP&L) that, in the good faith opinion of the Board of Directors of PP&L, Participant was guilty of conduct set forth in clauses (i) or (ii) of this definition, and specifying the particulars thereof in detail, is delivered to the executive. If at the time of determination, Participant is employed by an Affiliated Company, for purposes of this definition, the board of directors of such Affiliated Company shall be substituted for the Board of Directors of PP&L. "Change in Control" means the occurrence of any one of the following events: (a) any change in the control of Resources of a nature that would be required to be reported in response to Item 1(a) of Form 8-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (b) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with Resources to effect a transaction described in clause (a), (c) or (d) of this paragraph) whose election by the Board or nomination for election by Resources' shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute at least a majority thereof; (c) any Person becomes the beneficial owner, directly or indirectly, of securi- ties of Resources representing 20% or more of the combined voting power of Resources' then outstanding securities entitled to vote generally in the election of directors; (d) the approval by the shareowners of Resources of any merger or consolidation of Re- sources with any other corporation or a plan of complete liquida- tion of Resources or the sale or other disposition of all or substantially all of the assets of Resources to any other person or persons unless, after giving effect thereto, (1) holders of Resources' then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstand- ing stock entitled to vote generally in the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof and (2) the incumbent members of the Board as constituted immediately prior thereto shall constitute at least a majority of the directors of the continuing, surviving or transferee corpora- tion and any parent thereof; or (e) the Board adopts a resolution to the effect that a "Change in Control" has occurred or is an- ticipated to occur. "Eligible Employee" means any person employed by the Compa- ny, or an Affiliated Company on a regularly scheduled basis dur- ing any portion of a period for which an Award is made and who satisfies all of the requirements of Section 6. "Fair Market Value" means the average of the high and low sale prices of the Common Stock in regular way New York Stock Exchange Composite Transactions on the day immediately preceding the date as of which Fair Market Value is being determined or, if no Common Stock is traded on the date immediately preceding the date as of which Fair Market Value is being determined, Fair Market Value shall be the average of the high and low sale prices of the Common Stock in regular way New York Stock Exchange Com- posite Transactions on the next preceding day on which the Common Stock was traded. "Good Reason" for termination of Participant's employment with the Company or an Affiliated Company by such Participant means the occurrence (without Participant's express written con- sent) of any one of the following acts by the Company or an Affiliated Company: (a) the assignment to Participant of any duties incon- sistent with Participant's status as an executive officer or key employee of the Company or an Affiliated Company or a substantial adverse alteration in the nature or status of Participant's responsibilities from those in effect imme- diately prior to a Change in Control; (b) a reduction by the Company or Affiliated Company of Participant's annual base salary as in effect on the Effective Date of this restated Plan, or as the same may be increased from time to time; (c) the relocation of the Participant's principal work location to a location more than 30 miles from such work location immediately prior to a Change in Control; (d) the failure by the Company or Affiliated Company to pay to Participant any portion of Participant's current compensation or to pay to Participant any portion of an in- stallment of deferred compensation under any deferred com- pensation program of the Company or Affiliated Company, within seven (7) days of the date such compensation is due; (e) the failure by the Company or Affiliated Company to continue in effect any compensation or benefit plan in which Participant participates immediately prior to a Change in Control which is material to Participant's total com- pensation, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company or Affiliated Company to continue Participant's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Participant's participation relative to other participants, as existed at the time of a Change in Control, or (f) the failure by the Company or Affiliated Company to continue to provide Participant with benefits substan- tially similar to those enjoyed by Participant under any of the Company's or Affiliated Company's pension, retirement, savings, life insurance, medical, health and accident, or disability plans in which Participant was participating immediately prior to a Change in Control, the taking of any action by the Company or Affiliated Company which would directly or indirectly materially reduce any of such bene- fits or deprive Participant of any material fringe benefit enjoyed by Participant immediately prior to a Change in Control, or the failure by the Company or Affiliated Company to provide Participant with the number of paid vacation days to which Participant is entitled on the basis of years of service with the Company or Affiliated Company in accordance with the Company's or Affiliated Company's normal vacation policy in effect immediately prior to a Change in Control. Participant's right to terminate his or her employment with the Company or Affiliated Company for Good Reason shall not be affected by Participant's incapacity due to physical or mental illness. Participant's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. "Termination" means resignation or discharge from employment with the Company and all Affiliated Companies except in the event of death, Disability or Retirement. SECTION 6. ELIGIBILITY. Officers and other key employees of the Company or an Affiliated Company (including officers or employees who are members of the Board or the Board of Directors of the Company and/or any Affiliated Company, but excluding directors who are not officers or employees) who, in the opinion of the Committee, are mainly responsible for the continued growth, development and financial success of the Company or an Affiliated Company shall be eligible to be granted Awards under the Plan. Subject to the provisions of the Plan, the Committee shall from time to time select from such eligible persons those to whom Awards shall be granted and determine the amount of such Award. No officer or employee of the Company or an Affiliated Company shall have any right to be granted an Award under the Plan. SECTION 7. RESTRICTED STOCK. C. Forfeiture or Payout of Award. Restricted Stock Awards are subject to forfeiture or payout (i.e., removal of restric- tions) as follows: (i) Termination - the Restricted Stock Award will be com- pletely forfeited, provided, however, that the Restriction Period shall be eliminated and the entire Restricted Stock Award will be paid to a Participant whose employment with the Company or an Affiliated Company is terminated either (A) by the Company or an Affiliated Company for any reason other than for Cause or Disability, or (B) by Participant for Good Reason, in either case within three (3) years following a Change in Control. Participant's employment shall be deemed to have been terminated following a Change in Control without Cause or by Participant for Good Reason if Participant's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Resources the consummation of which will constitute a Change in Control or if Participant terminated his employment with Good Reason prior to a Change in Control (determined by treating a Potential Change in Control as a Change in Control in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (ii) Retirement - payout of the Restricted Stock Award will be prorated for service during the restriction period. (iii) Early Retirement - payout of the Restricted Stock Award will be prorated for service during the restriction period. (iv) Disability - payout of the Restricted Stock Award will be prorated as if the Participant had maintained active employ- ment until the Normal Retirement Date. (v) Death - payout of the Restricted Stock Award will be prorated as if the Participant had maintained active employment until the Normal Retirement Date. In any instance where payout of a Restricted Stock Award is to be prorated, the Committee may choose to provide the Partici- pant (or the Participant's estate) with the entire Award rather than the prorated portion thereof. Any Restricted Stock which is forfeited will be transferred to Resources. SECTION 10. MISCELLANEOUS PROVISIONS. B. No Employment Right. Neither this Plan nor any action taken hereunder shall be construed as giving any right to be retained as an employee of the Company or any Affiliated Company. C. Tax Withholding. Participants may be required to pay to the Company or an Affiliated Company the amount of any Federal, state or local taxes which the Company or an Affiliated Company is required to withhold with respect to an Award. At the request of a Participant, or as required by law, such sums as may be required for the payment of any estimated or accrued income tax liability may be withheld by the Company or an Affiliated Company and paid over to the governmental entity entitled to receive the same. The Committee, in its sole discretion, may permit a Participant to satisfy all or part of such Participant's withholding tax obligation incident to the vesting of Restricted Stock by having the Company or an Affiliated Company withhold a portion of the shares of Restricted Stock that otherwise would be issued to the Participant. Such shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering shares to the Company or an Affiliated Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by the rules of the Securities and Exchange Commission. II. Except as provided for in this Amendment No. 2, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 2 is executed this 3rd day of June, 1996. PENNSYLVANIA POWER & LIGHT COMPANY By:/s/ John M. Chappelear_________ John M. Chappelear Chairman Employee Benefit Plan Board EX-10 11 Exhibit 10(o)-4 AMENDMENT NO. 3 TO PENNSYLVANIA POWER & LIGHT COMPANY INCENTIVE COMPENSATION PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Incentive Compen- sation Plan ("Plan") effective January 1, 1987; and WHEREAS, the Plan was amended and restated effective July 1, 1992, and subsequently amended by Amendment No. 1 and 2; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1997, the following sections are amended to read: SECTION 2. DEFINITIONS. "Committee" means two or more non-employee Directors, unless otherwise determined by the Board, who have been designated by the Board to act as the Committee and qualify as disinterested directors under the Securities Exchange Act of 1934. SECTION 10. MISCELLANEOUS PROVISIONS. C. Tax Withholding. Participants may be required to pay to the Company or an Affiliated Company the amount of any Federal, state or local taxes which the Company or an Affiliated Company is required to withhold with respect to an Award. At the request of a Participant, or as required by law, such sums as may be required for the payment of any estimated or accrued income tax liability may be withheld by the Company or an Affiliated Company and paid over to the governmental entity entitled to receive the same. A Participant may elect to satisfy all or part of such Participant's withholding tax obligation incident to the vesting of Restricted Stock by having the Company or an Affiliated Company withhold a portion of the shares of Restricted Stock that otherwise would be issued to the Participant. Such shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. II. Effective January 1, 1997, Section 10.M is deleted in its entirety. III. Except as provided for in this Amendment No. 3, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 3 is executed this 13th day of February, 1997. PENNSYLVANIA POWER & LIGHT COMPANY By:_/s/ John M. Chappelear________ John M. Chappelear Vice President-Investments & Pensions EX-10 12 Exhibit 10(p) Executive Compensation Incentive Award Program The Company's Executive Compensation Incentive Award Program is designed to promote the success of the Company by providing a method whereby officers and key employees of the Company and its subsidiaries may be awarded additional remuneration based on specific Company objectives and the Company's overall return on equity. The program has two separate components. A short-term incentive plan makes cash awards to eligible employees based on the achievement of independent financial, operational and strategic goals established annually by the Compensation and Corporate Governance Committee of the Company's Board of Directors, as well as individual goals for officers who are not members of the Company's Corporate Leadership Council (CLC). A long-term incentive plan grants restricted Company stock to eligible employees based on the achievement of other goals established by the Committee. Awards under the program are made by the Committee of the Board of Directors, except that cash awards are made by CLC in the case of non-CLC members. EX-12 13 Exhibit 12(a) PP&L RESOURCES, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
1996 1995 1994 1993 1992 Fixed charges, as defined: Interest on long-term debt ...................... $207 $213 $214 $226 $240 Interest on short-term debt and other interest ........................... 17 18 18 13 12 Amortization of debt discount, expense and premium - net.............................. 2 2 2 2 1 Interest on capital lease obligations Charged to expense .......................... 13 15 12 9 10 Capitalized ................................. 2 2 1 1 2 Estimated interest component of operating rentals ............................. 8 8 6 5 5 Proportionate share of fixed charges of 50-percent-or-less-owned persons ....................................... 1 1 1 1 1 Total fixed charges ..................... $250 $259 $254 $257 $271 Earnings, as defined: Net income ...................................... $329 $323 $216 $314 $306 Preferred and Preference Stock Dividend Requirements................................... 28 28 28 34 40 Less undistributed income of less than 50-percent-owned persons ................ - - 357 351 244 348 346 Add (Deduct): Federal income taxes ............................ 189 195 198 163 145 State income taxes .............................. 64 62 77 64 65 Deferred income taxes ........................... 10 15 (45) 22 33 Investment tax credit - net ..................... (10) (10) (12) (14) (14) Income taxes on other income and deductions - net .............................. 0 24 (38) (1) 0 Amortization of capitalized interest on capital leases .................... 4 5 9 12 13 Total fixed charges as above (excluding capitalized interest on capital lease obligations) ................. 248 257 253 256 271 Total earnings .......................... $862 $899 $686 $850 $859 Ratio of earnings to fixed charges ......................................... 3.45 3.47 2.70 3.31 3.15
EX-12 14 Exhibit 12(b) PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES, CONSOLIDATED COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
1996 1995 1994 1993 1992 Fixed charges, as defined: Interest on long-term debt ................... $207 $213 $214 $226 $240 Interest on short-term debt and other interest ........................ 11 18 18 13 12 Amortization of debt discount, expense and premium - net........................... 2 2 2 2 1 Interest on capital lease obligations Charged to expense ....................... 13 15 12 9 10 Capitalized .............................. 2 2 1 1 2 Estimated interest component of operating rentals .......................... 8 8 6 5 5 Proportionate share of fixed charges of 50-percent-or-less-owned persons .................................... 1 1 1 1 2 Total fixed charges .................. $244 $259 $254 $257 $272 Earnings, as defined: Net income ................................... $357 $352 $243 $348 $346 Less undistributed income of less than 50-percent-owned persons ............. - 357 352 243 348 346 Add (Deduct): Federal income taxes ......................... 189 195 199 163 145 State income taxes ........................... 64 62 77 64 65 Deferred income taxes ........................ 10 15 (45) 22 33 Investment tax credit - net .................. (10) (11) (12) (14) (14) Income taxes on other income and deductions - net ........................... (2) 26 (38) (1) 0 Amortization of capitalized interest on capital leases ................. 4 6 9 12 13 Total fixed charges as above (excluding capitalized interest on capital lease obligations) .............. 243 257 253 256 271 Total earnings ....................... $855 $902 $686 $850 $859 Ratio of earnings to fixed charges ...................................... 3.50 3.48 2.70 3.31 3.15
EX-23 15 Exhibit 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statement on Form S-3 (No. 33-59405) of PP&L Resources, Inc. and of the Registration Statement on Form S-3 (No. 333-20661) of Pennsylvania Power & Light Company and in the Registration Statements on Form S-8 (No. 33-50031 and No. 333-02003) of PP&L Resources, Inc. of our report dated February 3, 1997 appearing on page 41 of this Form 10-K. (Signed) Price Waterhouse LLP PRICE WATERHOUSE LLP Philadelphia, Pennsylvania February 28, 1997 EX-23 16 (Deloitte & Touche LLP logo appears here) Exhibit 23(b) Two Hilton Court Telephone: (201) 631-7000 P.O. Box 319 Facsimile: (201) 631-7459 Parsippany, New Jersey 07054-0319 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-59405 of PP&L Resources, Inc. on Form S-3, Registration Statements No. 33-50031 and No. 333-02003 of PP&L Resources, Inc. on Form S-8 and Registration Statement No. 333-20661 of Pennsylvania Power & Light Company on Form S-3 of our report dated February 3, 1995, appearing in the Annual Report on Forms 10-K of PP&L Resources, Inc. and Pennsylvania Power & Light Company for the year ended December 31, 1996. February 28, 1997 (Deloitte Touche Tohmatsu International logo appears here) EX-24 17 Exhibit 24 PP&L RESOURCES, INC. PENNSYLVANIA POWER & LIGHT COMPANY 1996 ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K POWER OF ATTORNEY The undersigned directors of PP&L Resources, Inc. and Pennsylvania Power & Light Company, both Pennsylvania corporations, which are to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, their 1996 Annual Report on Form 10-K, do hereby appoint William F. Hecht, Ronald E. Hill and Robert J. Grey their true and lawful attorney, and each of them their true and lawful attorney, with power to act without the other and with full power of substitution and resubstitution, to execute for them and in their names said Form 10-K Report and any and all amendments thereto, whether said amendments add to, delete from or otherwise alter said Form 10-K Report, or add or withdraw any exhibits or schedules to be filed therewith and any and all instruments in connection therewith. The undersigned hereby grant to said attorneys and each of them full power and authority to do and perform in the name of and on behalf of the undersigned, and in any and all capacities, any act and thing whatsoever required or necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned might do, hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this 26th day of February, 1997. /s/ E. Allen Deaver L.S. /s/ Stuart Heydt L.S. E. Allen Deaver Stuart Heydt /s/ William J. Flood L.S. /s/ Clifford L. Jones L.S. William J. Flood Clifford L. Jones /s/ Elmer D. Gates L.S. /s/ Ruth Leventhal L.S. Elmer D. Gates Ruth Leventhal /s/ Derek C. Hathaway L.S. /s/ Frank A. Long L.S. Derek C. Hathaway Frank A. Long /s/ William F. Hecht L.S. /s/ Norman Robertson L.S. William F. Hecht Norman Robertson EX-27 18
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-K DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000922224 PP&L RESOURCES, INC. 1,000,000 YEAR DEC-31-1996 DEC-31-1996 PER-BOOK 6,905 575 749 1,407 0 9,636 2 1,600 1,143 2,745 295 171 2,802 144 0 0 30 0 166 81 3,202 9,636 2,910 253 2,101 2,354 556 21 577 220 357 28 329 269 207 793 2.05 2.05
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