-----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, UHwop5G+4Zj7vdfqH2jMK/qIUPOW9zpj5+kM+WiZFPU8iw7BRRIZZudXnETFGctV DCLDnFFBakWCErtOy4XO9w== /in/edgar/work/0001036050-00-001993/0001036050-00-001993.txt : 20001114 0001036050-00-001993.hdr.sgml : 20001114 ACCESSION NUMBER: 0001036050-00-001993 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL CORP CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11459 FILM NUMBER: 759528 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101-1179 FORMER COMPANY: FORMER CONFORMED NAME: PP&L RESOURCES INC DATE OF NAME CHANGE: 19941123 10-Q 1 0001.txt FORM 10-Q United States Securities and Exchange Commission Washington, DC 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 -------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _________________ Commission File Registrant; State of Incorporation; IRS Employer Number Address; and Telephone No. Identification No. ------ -------------------------- ------------------ 1-11459 PPL Corporation 23-2758192 (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 1-905 PPL Electric Utilities Corporation 23-0959590 (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. PPL Corporation Yes X No --------------- --------------- PPL Electric Utilities Corporation Yes X No --------------- --------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: PPL Corporation Common stock, $.01 par value, 144,926,507 shares outstanding at October 31, 2000, excluding 30,993,637 shares held as treasury stock PPL Electric Utilities Corporation Common stock, no par value, 102,230,382 shares outstanding and all held by PPL Corporation at October 31, 2000, excluding 55,070,000 shares held as treasury stock (THIS PAGE LEFT BLANK INTENTIONALLY.) PPL Corporation And PPL Electric Utilities Corporation ---------------------------------- FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 Table of Contents -----------------
Page ---- GLOSSARY OF TERMS AND ABBREVIATIONS FORWARD-LOOKING INFORMATION 1 PART I. FINANCIAL INFORMATION PPL Corporation and Subsidiaries Item 1. Financial Statements Consolidated Statement of Income 3 Consolidated Statement of Cash Flows 4 Consolidated Balance Sheet 5 Consolidated Statement of Shareowners' Common Equity 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 34 PPL Electric Utilities Corporation and Subsidiaries Item 1. Financial Statements Consolidated Statement of Income 37 Consolidated Statement of Cash Flows 38 Consolidated Balance Sheet 39 Consolidated Statement of Shareowner's Common Equity 41 Notes to Consolidated Financial Statements 42 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 46 Item 3. Quantitative and Qualitative Disclosures About Market Risk 63 PART II. OTHER INFORMATION Item 1. Legal Proceedings 64 Item 6. Exhibit and Reports on Form 8-K 65 SIGNATURES 67 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 68
GLOSSARY OF TERMS AND ABBREVIATIONS CEMAR - Companhia Energetica do Maranhao, a PPL Global subsidiary which distributes electricity in Brazil. CGE - Compania General Electricidad, SA, a distributor of energy in Chile and Argentina, in which PPL Global has an ownership interest. Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation enacted to address certain environmental issues including acid rain, ozone and toxic air emissions. Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice and Competition Act) - legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity. DelSur - Distribuidora Electricidad del Sur S.A., an electric distribution company in El Salvador, a majority of which is owned by EC. DEP - Pennsylvania Department of Environmental Protection. DRIP - Dividend reinvestment plan. Emel/EC - Empresas Emel, S.A., a Chilean electric distribution holding company, and Electricidad de Centroamerica, S.A. de C.V, an El Salvadoran holding company and the majority owner of Del Sur. EC is jointly owned by PPL Global and Emel. Energy Marketing Center - business unit responsible for marketing and trading wholesale energy. Effective July 1, 2000, the Energy Marketing Center is part of PPL EnergyPlus. EPA - Environmental Protection Agency. EPS - Earnings per share. FASB (Financial Accounting Standards Board) - a rulemaking organization that establishes financial accounting and reporting standards. FERC (Federal Energy Regulatory Commission) - federal agency that regulates interstate transmission and wholesale sales of electricity and related matters. Hyder - Hyder plc, a subsidiary of WPDL and owner of South Wales Electricity plc, Welsh Water and other service oriented businesses. ICP - Incentive Compensation Plan. ISO - Independent System Operator. LIBOR - London Interbank Offered Rate. MOU - Memorandum of Understanding. Montana Power - The Montana Power Company, a Montana-based company engaging in diversified energy and communication-related businesses. Montana Power sold its generating assets to PPL Global in December 1999. NOx - nitrogen oxide. NPDES - National Pollutant Discharge Elimination System. NUGs - (Non-Utility Generators) - generating plants not owned by public utilities whose electrical output must be purchased by utilities under the Public Utility Regulatory Policies Act if the plant meets certain criteria. NRC (Nuclear Regulatory Commission) - federal agency that regulates operation of nuclear power facilities. OTR - Northeast Ozone Transport Region. PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical equipment up to the late-1970s. Now classified as a hazardous chemical. PJM (PJM Interconnection, LLC) - operates the electric transmission network and electric energy market in the mid-Atlantic region of the U.S. PLR - provider of last resort, referring to PPL Electric Utilities providing electricity to retail customers within its delivery territory who have chosen not to shop for electricity under the Customer Choice Act. PPL - PPL Corporation, the parent holding company of PPL Electric Utilities, PPL Energy Funding and other subsidiaries. PPL Capital Funding - PPL Capital Funding, Inc., a PPL financing subsidiary. PPL Capital Trust - a Delaware statutory business trust created to issue Preferred Securities, whose common securities are held by PPL Electric Utilities. PPL Capital Trust II - a Delaware statutory business trust created to issue Preferred Securities, whose common securities are held by PPL Electric Utilities. PPL Electric Utilities - PPL Electric Utilities Corporation, a regulated subsidiary specializing in distribution and transmission of electricity. PPL Energy Funding - PPL Energy Funding Corporation, an unregulated subsidiary which, as of July 1, 2000, is the parent company for most of PPL's unregulated businesses. PPL EnergyPlus - PPL EnergyPlus, LLC, an unregulated subsidiary of PPL Energy Funding which supplies energy and energy services in newly deregulated markets. PPL Gas Utilities - PPL Gas Utilities Corporation, a regulated subsidiary specializing in natural gas distribution, transmission and storage services, and the sale of propane. PPL Generation - PPL Generation, LLC, an unregulated subsidiary of PPL Energy Funding which, effective July 1, 2000, owns and operates U.S. generating facilities through various subsidiaries. PPL Global - PPL Global, Inc., an unregulated subsidiary which invests in and develops domestic and international power projects, and operates international projects. Effective June 30, 2000, PPL Global, Inc. became PPL Global, LLC. Effective July 1, 2000, PPL Global became a subsidiary of PPL Energy Funding. PPL Maine - PPL Maine, LLC, formerly Penobscot Hydro, LLC. PPL Maine, effective July 1, 2000, became a subsidiary of PPL Generation, LLC. PPL Montana - PPL Montana, LLC, an unregulated subsidiary which generates electricity for wholesale and retail customers in Montana and the Northwest. Effective July 1, 2000, PPL Montana became a subsidiary of PPL Generation. PPL Services - PPL Services Corporation, an unregulated subsidiary of PPL which, as of July 1, 2000, provides shared services for PPL and its subsidiaries. PPL Spectrum - PPL Spectrum, Inc., an unregulated subsidiary which offers energy-related products and services. PPL Spectrum became a subsidiary of PPL EnergyPlus, effective July 1, 2000. PPL Susquehanna - PPL Susquehanna, LLC, the nuclear generating subsidiary of PPL Generation effective July 1, 2000. PUC (Pennsylvania Public Utility Commission) - state agency that regulates certain ratemaking, services, accounting, and operations of Pennsylvania utilities. SCR - selective catalytic reduction. SEC - Securities and Exchange Commission. SFAS (Statement of Financial Accounting Standards) - accounting and financial reporting rules issued by the FASB. SIP - State Implementation Plan. SNCR - selective non-catalytic reduction. SO2 - sulfur dioxide. Southern - The Southern Company, a diversified energy company based in Atlanta. PPL Global and Southern jointly own WPDH and WPDL. Superfund - federal and state environmental legislation that addresses remediation of contaminated sites. U.K. - United Kingdom. Western Mass. Holdings - Western Massachusetts Holdings, Inc., an unregulated subsidiary specializing in mechanical contracting and engineering. WPD - Western Power Distribution, a British regional electric utility company. WPDH - WPD Holdings UK, a jointly owned subsidiary of PPL Global and Southern. WPDH owns Western Power Distribution. WPDL - Western Power Distribution Limited, a jointly owned subsidiary of PPL Global and Southern. WPDL owns the majority of the shares of Hyder. Forward-looking Information Certain statements contained in this Form 10-Q are "forward-looking statements" within the meaning of the federal securities laws. Although PPL and PPL Electric Utilities believe that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward- looking statements: market demand and prices for energy, capacity and fuel; weather variations affecting customer energy usage; competition in retail and wholesale power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements; system conditions and operating costs; development of new projects; performance of new ventures; political, regulatory or economic conditions in countries where PPL or its subsidiaries conduct business; any required governmental approvals or third-party consents; capital market conditions; foreign exchange rates; and the commitments and liabilities of PPL and its subsidiaries. Any such forward-looking statements should be considered in light of such factors and in conjunction with PPL's and PPL Electric Utilities' Form 10-K and other documents on file with the SEC. New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for PPL or PPL Electric Utilities to predict all of such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and neither PPL nor PPL Electric Utilities undertakes any obligation to update the information contained in such statement to reflect subsequent developments or information. PPL CORPORATION AND SUBSIDIARIES -------------------------------- PPL CORPORATION AND SUBSIDIARIES - -------------------------------- Part 1. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements - ---------------------------- In the opinion of PPL, the unaudited financial statements included herein reflect all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 2000 and December 31, 1999, and the Consolidated Statement of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 2000 and 1999. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars, except per share data)
Three Months Nine Months Ended September 30, Ended September 30, --------------------- ---------------------- 2000 1999 2000 1999 --------- --------- --------- ---------- Operating Revenues Electric...................................................................... $ 729 $ 811 $ 2,201 $ 2,062 Natural gas and propane....................................................... 26 15 120 85 Wholesale energy marketing and trading........................................ 616 495 1,559 1,127 Energy related businesses..................................................... 87 65 288 183 ------- -------- --------- ------- Total......................................................................... 1,458 1,386 4,168 3,457 ------- -------- --------- ------- Operating Expenses Operation Electric fuel............................................................ 129 131 345 351 Natural gas and propane.................................................. 7 3 45 36 Energy purchases for retail load and wholesale........................... 554 567 1,501 1,180 Other.................................................................... 158 179 462 473 Amortization of recoverable transition costs............................. 50 48 159 135 Maintenance................................................................... 55 53 175 150 Depreciation and amortization................................................. 58 73 196 193 Taxes, other than income...................................................... 37 40 146 135 Energy related businesses..................................................... 97 54 265 139 ------- -------- --------- ------- Total......................................................................... 1,145 1,148 3,294 2,792 ------- -------- --------- ------- Operating Income................................................................. 313 238 874 665 ------- -------- --------- ------- Other Income - Net............................................................... 1 8 7 ------- -------- --------- ------- Income Before Interest, Income Taxes and Minority Interest....................... 314 238 882 672 Interest Expense................................................................. 94 80 274 203 ------- -------- --------- ------- Income Before Income Taxes, Minority Interest and Extraordinary Items............ 220 158 608 469 ------- -------- --------- ------- Income Taxes..................................................................... 75 (22) 215 92 Minority Interest................................................................ 3 13 4 13 ------- -------- --------- ------- Income Before Extraordinary Items................................................ 142 167 389 364 Extraordinary Items (net of income taxes)........................................ (59) (59) ------- -------- --------- ------- Income Before Dividends on Preferred Stock....................................... 142 108 389 305 Preferred Stock Dividend Requirements............................................ 6 6 19 19 ------- -------- --------- ------- Net Income....................................................................... $ 136 $ 102 $ 370 $ 286 ======= ======== ========= ======= Earnings Per Share of Common Stock Basic and Diluted Income Before Extraordinary Items........................................... $ 0.94 $ 1.07 $ 2.57 $ 2.22 Extraordinary Items (net of tax)............................................ (0.39) (0.37) ------- -------- --------- ------- $ 0.94 $ 0.68 $ 2.57 $ 1.85 ======= ======== ========= ======= Dividends Declared per Share of Common Stock..................................... $ 0.265 $ 0.25 $ 0.795 $ 0.75
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS PPL Corporation and Subsidiaries (Unaudited) (Millions of Dollars) Nine Months Ended September 30, ------------------- 2000 1999 ------ -------- Net Cash Provided by Operating Activities................ $ 529 $ 530 Cash Flows From Investing Activities Expenditures for property, plant and equipment........ (311) (291) Investment in electric energy projects................ (647) (189) Sale of nuclear fuel to trust......................... 27 14 Proceeds from PPL Montana sale - leaseback............ 410 Other investing activities - net...................... (17) (4) ------ ------- Net cash used in investing activities............... (538) (470) ------ ------- Cash Flows From Financing Activities Issuance of long-term debt............................ 1,000 2,420 Issuance of common stock.............................. 22 8 Retirement of long-term debt.......................... (337) (1,469) Termination of nuclear fuel lease..................... (154) Purchase of treasury stock............................ (417) Payment of common and preferred dividends............. (132) (137) Payments on capital lease obligation.................. (11) (42) Net decrease in short-term debt....................... (250) (200) Other financing activities - net...................... 18 (78) ------ ------- Net cash provided by financing activities........... 156 85 ------ ------- Net Increase In Cash and Cash Equivalents................ 147 145 Cash and Cash Equivalents at Beginning of Period......... 133 195 ------ ------- Cash and Cash Equivalents at End of Period............... $ 280 $ 340 ====== ======= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest (net of amount capitalized)................ $ 229 $ 179 Income taxes........................................ $ 233 $ 141 The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED BALANCE SHEET PPL Corporation and Subsidiaries (Unaudited) (Millions of Dollars)
September 30, December 31, 2000 1999 ------------- ------------ Assets Current Assets Cash and cash equivalents.................................... $ 280 $ 133 Accounts receivable (less reserve: 2000, $58; 1999, $22)..... 555 399 Unbilled revenues............................................ 278 310 Fuel, materials and supplies - at average cost............... 192 200 Prepayments.................................................. 64 119 Unrealized energy trading gains.............................. 160 26 Other........................................................ 213 106 ------------- ------------ 1,742 1,293 ------------- ------------ Investments Investment in unconsolidated affiliates at equity............ 698 424 Nuclear plant decommissioning trust fund..................... 276 255 Other........................................................ 47 16 ------------- ------------ 1,021 695 ------------- ------------ Property, Plant and Equipment Electric utility plant in service - net Transmission and distribution.............................. 2,804 2,462 Generation................................................. 2,143 2,352 General.................................................... 265 259 ------------- ------------ 5,212 5,073 Construction work in progress - at cost...................... 225 181 Nuclear fuel owned and leased - net.......................... 108 139 ------------- ------------ Electric utility plant - net............................... 5,545 5,393 Gas and oil utility plant - net.............................. 171 171 Other property - net......................................... 79 60 ------------- ------------ 5,795 5,624 ------------- ------------ Regulatory Assets and Other Noncurrent Assets Recoverable transition costs................................. 2,487 2,647 Other........................................................ 927 915 ------------- ------------ 3,414 3,562 ------------- ------------ $ 11,972 $ 11,174 ============= ============
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED BALANCE SHEET PPL Corporation and Subsidiaries (Unaudited) (Millions of Dollars)
September 30, December 31, 2000 1999 ------------- ------------ Liabilities and Equity Current Liabilities Short-term debt.................................................... $ 607 $ 857 Long-term debt..................................................... 417 468 Above market NUG purchases......................................... 94 99 Accounts payable................................................... 376 399 Taxes and interest accrued......................................... 174 144 Dividends payable.................................................. 45 43 Unrealized energy trading losses................................... 170 28 Other.............................................................. 160 242 ------------- ------------ 2,043 2,280 ------------- ------------ Long-term Debt........................................................ 4,564 3,689 ------------- ------------ Deferred Credits and Other Noncurrent Liabilities Deferred income taxes and investment tax credits................... 1,474 1,548 Above market NUG purchases......................................... 604 674 Other.............................................................. 966 959 ------------- ------------ 3,044 3,181 ------------- ------------ Commitments and Contingent Liabilities................................ ------------- ------------ Minority Interest..................................................... 75 64 ------------- ------------ Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company debentures................. 250 250 ------------- ------------ Preferred Stock With sinking fund requirements..................................... 47 47 Without sinking fund requirements.................................. 50 50 ------------- ------------ 97 97 ------------- ------------ Shareowners' Common Equity Common stock....................................................... 2 2 Capital in excess of par value..................................... 1,882 1,860 Treasury stock..................................................... (836) (836) Earnings reinvested................................................ 910 654 Accumulated other comprehensive income............................. (47) (55) Capital stock expense and other.................................... (12) (12) ------------- ------------ 1,899 1,613 ------------- ------------ $ 11,972 $ 11,174 ============= ============
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY PPL Corporation and Subsidiaries (Unaudited) (Millions of Dollars)
For the Three Months Ended For the Nine Months Ended September 30, September 30, -------------------------- --------------------------- 2000 1999 2000 1999 ----------- ---------- ----------- ---------- Common stock at beginning of period.................................. $ 2 $ 2 $ 2 $ 2 ----------- ---------- ----------- ---------- Common stock at end of period........................................ 2 2 2 2 ----------- ---------- ----------- ---------- Capital in excess of par value at beginning of period................ 1,873 1,874 1,860 1,866 Common stock issued through the DRIP and the ICP (a).............. 9 22 8 Other............................................................. (14) (14) ----------- ---------- ----------- ---------- Capital in excess of par value at end of period...................... 1,882 1,860 1,882 1,860 ----------- ---------- ----------- ---------- Treasury stock at beginning of period................................ (836) (419) (836) (419) Purchase of treasury stock........................................ (417) (417) ----------- ---------- ----------- ---------- Treasury stock at end of period...................................... (836) (836) (836) (836) ----------- ---------- ----------- ---------- Earnings reinvested at beginning of period........................... 812 477 654 372 Net income (b).................................................... 136 102 370 286 Cash dividends declared on common stock........................... (38) (37) (114) (115) Other............................................................. 1 ----------- ---------- ----------- ---------- Earnings reinvested at end of period................................. 910 543 910 543 ----------- ---------- ----------- ---------- Accumulated other comprehensive income at beginning of period........ (63) (20) (55) (4) Unrealized gain on available for sale securities (b).............. 6 6 Foreign currency translation adjustments, net of tax benefit of $3, $(1), $10, $2 (b).......................................... 10 (27) 2 (43) ----------- ---------- ----------- ---------- Accumulated other comprehensive income at end of period.............. (47) (47) (47) (47) ----------- ---------- ----------- ---------- Capital stock expense at beginning of period......................... (12) (28) (12) (27) Other............................................................. 16 15 ----------- ---------- ----------- ---------- Capital stock expense at end of period............................... (12) (12) (12) (12) ----------- ---------- ----------- ---------- Total Shareowners' Common Equity..................................... $ 1,899 $ 1,510 $ 1,899 $ 1,510 =========== ========== =========== ========== (Thousands of Shares) Common stock shares at beginning of period (a)....................... 144,300 157,694 143,697 157,412 Treasury stock purchased.......................................... (14,000) (14,000) Common stock issued through the DRIP and the ICP.................. 420 1,023 282 ----------- ---------- ----------- ---------- Common stock shares at end of period................................. 144,720 143,694 144,720 143,694 =========== ========== =========== ========== (a) $.01 par value, 390 million shares authorized. Each share entitles the holder to one vote on any question presented to any shareowners' meeting. (b) Statement of Comprehensive Income: Net income...................................................... $ 136 $ 102 $ 370 $ 286 Other comprehensive income, net of tax: Foreign currency translation adjustments.................... 10 (27) 2 (43) Unrealized gain on available-for-sale securities............ 6 6 ----------- ---------- ----------- ---------- Total other comprehensive income................................ 16 (27) 8 (43) ----------- ---------- ----------- ---------- Comprehensive Income............................................ $ 152 $ 75 $ 378 $ 243 =========== ========== =========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. PPL CORPORATION Notes to Consolidated Financial Statements ------------------------------------------ Terms and abbreviations appearing in Notes to Consolidated Financial Statements are explained in the glossary. 1. Interim Financial Statements Certain information in footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, has been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. These financial statements should be read in conjunction with the financial statements and notes included in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 1999. Certain amounts in the September 30, 1999 and December 31, 1999 financial statements have been reclassified to conform to the presentation in the September 30, 2000 financial statements. 2. Summary of Significant Accounting Policies Consolidation It is the policy of PPL Global to record equity in earnings of affiliates on a lag, based on the availability of financial data on a U.S. GAAP basis. Earnings from WPD and WPDL are recorded on a one-month lag. Earnings from all other equity affiliates are recorded on a three-month lag. PPL Global consolidates the results of Emel, EC, Elfec and Integra on a one-month lag; the results of CEMAR will be consolidated on a three-month lag. Elfec and Integra are Bolivian companies engaged in distribution of electricity and the manufacture of long-lived assets for the electric utility business, respectively. Leases In March 2000, PPL Electric Utilities terminated its nuclear fuel lease and repurchased $154 million of nuclear fuel from the lessor energy trust. In July 2000, all nuclear fuel was transferred to PPL Susquehanna, the new unregulated nuclear generating subsidiary of PPL Generation, in connection with the corporate realignment. See Note 12 for additional information. Sale-Leaseback In July 2000, PPL Montana sold its investment in the Colstrip Steam Generation electric plant to owner lessors who are leasing the assets back to PPL Montana under a thirty-six year operating lease. The proceeds from the sale approximated $410 million. A gain of approximately $8 million was deferred, and will be amortized over the life of the lease. PPL Montana used the proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation. Future lease payments are estimated as follows (millions of dollars): 2001, $43; 2002, $49; 2003, $47; 2004, $44 and 2005, $38. Depreciation PPL subsidiaries periodically review the depreciable lives of their fixed assets. In conjunction with the corporate realignment, studies were conducted of depreciable lives of certain generation assets. These studies indicated that the estimated economic lives for certain generation assets were longer than the lives used to calculate depreciation for financial statement purposes. Therefore, effective July 1, 2000, PPL subsidiaries revised the estimated economic lives for fossil generation and pipeline assets. 3. Earnings Per Share Basic EPS is calculated by dividing earnings available to common shareowners ("Net Income" on PPL's Consolidated Statement of Income) by the weighted average number of common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. For the three and nine months ended September 30, 2000, the weighted average shares outstanding (in thousands) were 144,578 and 144,165, respectively. Dilutive shares had no impact on EPS of $.94 and $2.57 for those periods. For the three and nine months ended September 30, 1999, the weighted average shares outstanding (in thousands) were 150,694 and 154,865, respectively. Dilutive shares had no impact on EPS of $.68 and $1.85 for those periods. 4. Segment and Related Information On July 1, 2000, PPL and PPL Electric Utilities completed a corporate realignment, in order to effectively separate PPL Electric Utilities' regulated transmission and distribution businesses from its recently deregulated generation businesses to better position the companies and their affiliates in the new competitive marketplace. PPL's reportable segments have been revised to reflect this new corporate structure. After realignment, the new segments of PPL are Supply, Delivery, Development, and Corporate. The Supply group includes the domestic unregulated energy marketing and generation functions of PPL EnergyPlus and PPL Generation. The Delivery group includes the regulated electric and gas delivery businesses of PPL Electric Utilities and PPL Gas Utilities. The Development group includes PPL Global, the principal businesses of which are the acquisition and development of both domestic and international energy projects and the ownership of international energy projects. The major items reflected in Corporate include recovery of PPL Electric Utilities' stranded costs, indirect support group costs, preferred dividends, and interest expense not directly allocated to the segments. Support groups include functions such as corporate accounting, finance, legal, human resources, and information services. Corporate also includes intercompany eliminations required to reconcile to the corporate books. Prior to the corporate realignment, the reportable segments of PPL were PPL Electric Utilities, PPL Global and Other. Previously reported 1999 information has been restated to conform to the current presentation. Financial data for PPL's business segments are as follows (millions of dollars):
Three Months Nine Months ------------ ----------- Ended September 30, Ended September 30, ------------------- ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Income Statement data Revenues from external customers Supply $1,071 $ 903 $ 2,912 $2,315 Delivery 167 157 550 527 Development 82 198 a) 312 240 Corporate 138 128 394 375 ------ ------- ------- ------ 1,458 1,386 4,168 3,457 Intersegment revenues Supply N/A - there are no intersegment revenues Delivery between these segments Development Corporate Net income Supply 121 50 295 135 Delivery 19 11 65 46 Development 12 7 31 23 Corporate (16) 34 (21) 82 ------ ------- ------- ------ $ 136 $ 102 $ 370 $ 286 September 30, December 31, ------------- ------------ 2000 1999 ---- ---- Balance Sheet data Total assets Supply $ 3,404 $ 3,212 Delivery 2,617 2,611 Development 2,215 1,424 Corporate 3,736 3,927 ------- ------- $11,972 $11,174
a) In the third quarter of 1999, PPL Global increased its investment in Emel thereby achieving control of both Emel and EC. As a result, PPL Global consolidated the accounts of Emel and EC in the third quarter of 1999, picking up activity from January through August 1999. 5. Investments in Unconsolidated Affiliates PPL's investments in unconsolidated affiliates were $698 million and $424 million at September 30, 2000 and December 31, 1999, respectively. In September and October 2000, WPDL purchased additional shares of Hyder, bringing its total shareholdings to approximately 97%. See Note 9 for additional information. PPL Global's ownership interest in WPDL is 60%, and Southern's ownership interest is 40%. Under an arrangement between the two companies, PPL Global's ownership interest in WPDL may decrease to 51% and Southern's ownership interest may increase to 49%, depending upon the execution of a call option by Southern. PPL Global and Southern share control of WPDL equally. Accordingly, PPL Global accounts for its investment in WPDL (and other investments where it has majority ownership but lacks voting control) under the equity method of accounting. PPL Global's ownership investment in WPDL was $126 million at September 30, 2000. Consistent with PPL Global's policy of recording equity earnings on a lag basis, no equity earnings of WPDL were recorded as of September 30, 2000. Summarized below is information from the financial statements of unconsolidated affiliates included in the PPL consolidated financial statements under the equity method for the periods noted (millions of dollars):
Balance Sheet Data September 30, December 31, ------------- ------------ 2000 1999 ---- ---- Current Assets $ 204 $ 389 Noncurrent Assets 4,819 3,340 Current Liabilities 270 367 Noncurrent Liabilities 3,107 1,890 Income Statement Data Three Months Nine Months ------------ ------------ Ended September 30, Ended September 30, ------------------- ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues a) $ 100 $ 295 $ 352 $ 888 Operating Income 42 54 169 198 Net Income 16 31 101 96
a) The decrease in revenues for the three and nine months ended September 30, 2000 was primarily due to the sale of the supply business of WPD, formerly SWEB, in the fourth quarter of 1999. 6. Sales to Other Electric Utilities As part of the corporate realignment on July 1, 2000, PPL Electric Utilities' contracts for sales to other electric utilities were assigned to PPL EnergyPlus, which was transferred to an unregulated subsidiary of PPL. See Note 12 for information on the corporate realignment. PPL Montana provides power to Montana Power under two wholesale transition sales agreements. These agreements expire in December 2001 and June 2002. PPL Montana has supplied Montana Power with approximately 3,843 million kWh for the nine months ended September 30, 2000. 7. Credit Arrangements and Financing Activities PPL Electric Utilities issues commercial paper. At September 30, 2000, PPL Electric Utilities had no commercial paper outstanding. PPL Capital Funding, whose purpose is to provide debt funding for PPL and its subsidiaries, also issues commercial paper. As with all PPL Capital Funding debt, this commercial paper is guaranteed by PPL. At September 30, 2000, PPL Capital Funding had $574 million of commercial paper outstanding, at interest rates ranging from 6.91% to 6.99% per annum. In order to enhance liquidity, and as a credit back-stop to the commercial paper programs, PPL Electric Utilities, PPL Capital Funding and PPL (as guarantor for PPL Capital Funding) share a 364-day $750 million credit facility and a five-year $300 million credit facility, each with a group of banks. At September 30, 2000, no borrowings were outstanding under either facility. Through September 30, 2000, PPL Capital Funding had issued the following series of medium-term notes: in February 2000, $500 million of 7.75% Series due 2005; in June 2000, $300 million of 8.375% Series due 2007; in August 2000, $25 million of 7.75% Series due 2002; in September 2000, $125 million and $50 million of two floating-rate issues with maturities of 2002. The proceeds from these issuances were used for general corporate purposes, including making loans to PPL subsidiaries and reducing commercial paper balances. The February and June issuances were under the $1.2 billion shelf registration statement filed with the SEC in September 1999 and the August and September issuances were under the $400 million shelf registration statement filed with the SEC in January 1999. In April 2000, PPL Electric Utilities redeemed and retired all of its outstanding First Mortgage Bonds, 9-1/4% Series due 2019, at the aggregate par value of $27.6 million through the maintenance and replacement fund provisions of its Mortgage. In June 2000, PPL Electric Utilities paid and retired all $125 million aggregate principal amount of its outstanding First Mortgage Bonds, 6% Series due 2000. PPL Transition Bond Company, LLC retired the following class A-1 Bonds through September 30, 2000: in March 2000, $62.2 million; in June 2000, $61.3 million; and in September 2000, $52.3 million. In 1999, PPL Montana entered into $950 million of credit facilities, non- recourse to PPL, with a group of banks, including a $675 million 364-day facility and two revolving credit facilities totaling $275 million which mature in 2002. The purpose of these facilities was to provide bridge loan financing for the acquisition of the Montana assets and to fund PPL Montana's working capital needs. In May and June 2000, PPL Montana reduced the amount of these credit facilities by $490 million. At June 30, 2000, $360 million of borrowings were outstanding under these facilities. In July 2000, PPL Montana completed the sale of its investment in the Colstrip coal-fired plant to owner lessors, which are leasing the assets back to PPL Montana under a 36-year operating lease. The proceeds from the sale were approximately $410 million. PPL Montana used these proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation. In July 2000, PPL Montana reduced the amount of the credit facilities to $100 million. On September 30, 2000, $5 million of borrowings were outstanding under these facilities. In September 2000, a PPL Global subsidiary entered into an agreement with General Electric for the acquisition of turbine-generators and related equipment. See Note 9 for additional information. The turbines are being financed using a leasing structure that eliminates the need for cash outlays during the turbine manufacturing process and diversifies PPL's funding sources. The lease financing is being consummated in two stages, and is being structured as an operating lease. 8. Financial Instruments PPL enters into forward-starting interest rate swaps and treasury lock agreements with various counterparties to hedge interest rate risk associated with anticipated debt issuances. These interest rate swap agreements involve the future exchange of floating-rate interest payments for fixed-rate interest payments over the life of the agreements. In April 2000, PPL settled $180 million notional amount of treasury lock agreements and made a payment of $6 million under the terms of the agreements. In February 2000, June 2000, and July 2000, PPL settled $430 million, $350 million, and $270 million notional amount of forward-starting interest rate swaps, respectively. The February 2000 and June 2000 settlements were in connection with medium-term note issuances, and PPL received net proceeds of about $16 million and $10 million, respectively. These amounts have been deferred on the balance sheet and are currently being amortized over the life of the medium-term notes. The July 2000 settlement of $270 million was in connection with the PPL Montana lease transaction and resulted in net proceeds of about $4 million, which also have been deferred on the balance sheet and are currently being amortized over the life of the lease. At September 30, 2000, PPL agreed to pay fixed rates between 7.02 - 7.208% on forward-starting swaps with notional amounts of $125 million and maturities of October 2010. PPL will receive a variable-rate interest payment based on either a 3-month or 6-month LIBOR rate through the maturity of these agreements. The estimated fair value of these agreements, which represents the estimated amount PPL would pay if it had terminated these agreements at September 30, 2000, was $2 million. Since the original transaction dates of these swaps, the anticipated debt they were expected to hedge was not issued. Therefore, the market value of these swaps is recorded in current earnings. During October 2000, PPL settled these positions and made a payment of $3 million under the terms of the agreement. PPL has also entered into interest rate swap agreements whereby PPL agreed to pay a floating interest rate and receive a fixed interest rate payment. These swaps are executed with the intent of adjusting the amount of floating- rate debt carried in PPL's liability portfolio. In April and June 2000, PPL unwound $450 million of these swaps, receiving a payment of approximately $5 million. In September 2000, PPL settled $150 million notional amount of these swaps and realized an insignificant gain. At September 30, 2000, PPL had approximately $335 million notional amount of these swaps outstanding. The estimated fair value of these contracts, representing the amount PPL would pay if it terminated these agreements at September 30, 2000, was $6 million. During the second and third quarters of 2000, PPL entered into currency hedges related to the acquisition of Hyder shares in order to minimize its exposure to adverse foreign currency exchange rate fluctuations. In May 2000, PPL entered into currency options at a cost of approximately $2 million giving it the right, but not the obligation, to purchase $400 million worth of British pounds sterling at prevailing exchange rates. These options expired in September 2000. PPL also entered into currency forward agreements to lock in exchange rates on the purchase of approximately 170 million British pounds sterling and the sale of approximately 50 million British pounds sterling. These positions were unwound in the third quarter of 2000, at a loss of approximately $2 million. During October 2000, PPL entered into and subsequently settled currency forward agreements to lock in the exchange rate on the purchase of approximately 22 million British pounds sterling. PPL realized an insignificant gain on the settlement of these transactions. 9. Acquisitions Domestic Generation Projects In 1998, PPL Global signed definitive agreements with Montana Power, Portland General Electric Company ("Portland") and Puget Sound Energy, Inc. ("Puget") to acquire interests in 13 Montana power plants, with 2,372 gross megawatts of generating capacity, for a purchase price of $1.546 billion. The acquisition involved the Colstrip and Corette coal-fired plants, 11 hydroelectric facilities and a storage reservoir. The Puget and Portland agreements also provided for the acquisition of related transmission assets for an additional $126 million, subject to certain conditions. In December 1999, PPL Global completed the purchase of about 1,315 gross megawatts of generating assets from Montana Power for $757 million. This acquisition transferred to PPL Montana the 11 hydroelectric facilities, the storage reservoir, the Corette plant and Montana Power's ownership interest in three of the four units of the Colstrip plant, along with other generation-related assets. PPL Global's acquisition of the Colstrip interests of Puget and Portland, totaling 1,057 additional megawatts, was subject to several conditions, primarily the receipt by Puget and Portland of satisfactory regulatory approvals from the state utility commissions in Washington and Oregon. However, these commissions denied the respective applications to sell the Puget and Portland Colstrip interests. The acquisition agreements permitted each party to terminate the respective agreements if closing did not occur by April 30, 2000. Both of these acquisition agreements have now been terminated. The Montana Power Asset Purchase Agreement, which PPL Global assigned to PPL Montana, provided that if neither the Puget nor the Portland acquisitions were consummated, PPL Montana would be required to purchase a portion of Montana Power's interest in the 500-kilovolt Colstrip Transmission System for $97 million, subject to receipt of required regulatory approvals, which have been received. PPL Montana currently is working with Montana Power to consummate this transaction, which is expected to be completed by June 30, 2001. In May 2000, PPL Global signed a definitive agreement to acquire an additional interest in the coal-fired Conemaugh Power Plant from Potomac Electric Power Company. Under the terms of the acquisition agreement, PPL Global and Allegheny Energy Supply Company, LLC will jointly acquire a 9.72 percent interest in the 1,711 megawatt plant. PPL, through one of its subsidiaries, currently owns an 11.39 percent interest in the two-unit facility. PPL Global and Allegheny Energy Supply will pay $152.5 million for the 166- megawatt share of the plant. This acquisition, which is subject to certain governmental approvals, is expected to be completed by the end of 2000. The arrangement entitles each company to one-half of the output from its newly- acquired share of the plant. In May 2000, PPL Global announced plans to install five compact, natural gas-fired electric generation facilities in eastern Pennsylvania totaling about 900 megawatts of capacity. The five facilities, with an estimated total cost between $400 and $450 million, will be peaking generators to be used during periods of high energy demand. These facilities are expected to be completed by the summer of 2002, pending necessary governmental approvals. PPL Global continues to pursue plans to build peaking capacity on Long Island in New York. The current emphasis is on a site as a facility for 300 megawatts of capacity at a total capital cost of approximately $200 million. In September 2000, a PPL Global subsidiary entered into an arrangement that provides 30 turbine-generators for PPL's domestic expansion program. The gas- fired, 50-megawatt turbine-generators and related equipment, manufactured by General Electric, will provide PPL with flexibility in growing its electricity generation and marketing business in various regions of the United States. The PPL Global subsidiary will pay General Electric approximately $400 million under the terms of the arrangement. The turbines are being financed using a leasing structure, with the PPL Global subsidiary as the lessee, that eliminates the need for any cash outlays during the turbine manufacturing process and diversifies PPL's funding sources. The units are expected to go into service beginning in 2002. The arrangement also gives the PPL Global subsidiary the option to purchase an additional 36 turbine-generators. International Distribution Projects At the end of June 2000, PPL Global finalized the acquisition of an 84.7 percent interest in CEMAR, an electricity distribution company in Brazil. The acquisition price was $289 million, financed initially with short-term debt. In accordance with its policy of recording the results of foreign operations on a lag basis, no operating results of CEMAR were recorded as of September 30, 2000. In August 2000, WPDL submitted an offer for the remaining shares of Hyder for 365 pence per share, or a total purchase price of 559 million British pounds sterling ($838 million based on current exchange rates at that time). Hyder is the owner of South West Electricity plc, an electric distribution company serving approximately 980,000 customers in Wales. Hyder also owns certain Welsh water and other service-oriented businesses. On September 15, 2000, WPDL's offer of 365 pence per share was declared unconditional in all respects and remained open for acceptance by Hyder shareowners through October 25, 2000. Designation of the increased offer as unconditional allowed WPDL to take operational control of Hyder. On September 29, 2000, WPDL closed on the purchase of approximately 110 million shares of Hyder for a total purchase price of about 395 million British pounds sterling ($584 million based on a current exchange rates at that time). When combined with WPDL's existing ownership interest in Hyder, this purchase gave WPDL approximately 70% of Hyder's total outstanding shares. Subsequently, WPDL purchased additional shares of Hyder bringing its total shareholdings to approximately 97%. WPDL currently is pursuing the acquisition of the remaining Hyder shares. PPL Global's ownership interest in WPDL is 60%, and Southern's is 40%. Under an arrangement between the two companies, PPL Global's ownership interest in WPDL may decrease to 51% and Southern's ownership interest may increase to 49% depending upon the execution of a call option by Southern. PPL Global and Southern share control of WPDL equally. PPL Global's share of the acquisition cost was made from existing resources and facilities, of which $75 million is expected to be repaid by the end of the first quarter of 2001. Based on a 60% ownership interest, PPL Global's share of the total investment in WPDL, which is not expected to exceed $155 million, would be refinanced with a combination of debt and equity securities. PPL does not plan to issue common stock to finance this acquisition. WPDL is actively pursuing a range of options with respect to Hyder's non-electric businesses. In this regard, WPDL is offering management of Hyder's water business in a competitive bid process, pursuant to European Union procurement rules. At the same time, WPDL has announced an agreement in principle with Welsh firm Glas Cymru Cyfyngedig (Glas) for the disposition of the water business. Under this proposed arrangement, which is subject to approval by the U.K. water regulator, Glas would assume the water business' 1.8 billion British pounds of debt. In October 2000, PPL Global announced a partnership with the Claro group, a key shareowner of CGE, a leading energy distribution company in Chile and Argentina. PPL Global has already acquired approximately 3 percent of CGE. Under the terms of the partnership, the Claro group has the right to sell up to an additional 5.6 percent to PPL Global over the next two years. If the rights are exercised fully, PPL Global's total investment would be about $140 million. CGE provides electricity delivery services to 1.4 million customers in Chile and natural gas delivery services to 200,000 customers in Santiago. Other In June 2000, B-G Mechanical Services Inc., a subsidiary of Western Mass. Holdings, acquired Clark Heating Services, Inc. The purchase price for this acquisition was not significant. In August 2000, Titan Mechanical Contractors, a subsidiary of Western Mass. Holdings, acquired Aire Tech Mechanical Services, Inc. The purchase price for this acquisition was not significant. 10. Commitments and Contingent Liabilities Nuclear Insurance PPL Susquehanna 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. PPL Susquehanna 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, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. At September 30, 2000, the maximum amount PPL Susquehanna could be assessed under these programs was about $21 million. PPL Susquehanna's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $9.7 billion under provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna 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, PPL Susquehanna could be assessed up to $168 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. PPL subsidiaries are in substantial compliance with the Clean Air Act. During 1999, PPL's Pennsylvania plants achieved seasonal (May-June) NOx reductions of 68% from 1990 levels in response to the DEP's rule implementing the Northeast Ozone Transport Region's (OTR) MOU. These reductions were achieved with operational initiatives that relied primarily on the low NOx burners installed in compliance with the acid rain requirements. The DEP has finalized regulations requiring further seasonal (May-June) NOx reductions to 80% from 1990 levels starting in 2003. These further reductions are based on the requirements of the OTR MOU and two EPA ambient ozone initiatives: the September 1998 EPA SIP-call (i.e., EPA's requirement for states to revise their SIPs) issued under Section 110 of the Clean Air Act, requiring reductions from 22 eastern states, including Pennsylvania; and the EPA's approval of petitions filed by Northeastern states, requiring reductions from sources in 12 Northeastern states and Washington D.C., including PPL sources. The EPA's SIP-call was substantially upheld by the D.C. Circuit Court of Appeals in an appeals proceeding. Although the Court extended the implementation to May 2004, the DEP has not changed its rules accordingly. PPL expects to achieve the 2003 NOx reductions with the recent installation of SCR technology on the Montour units and possibly SCR or SNCR on a Brunner Island unit. The EPA has also developed new standards for ambient levels of fine particulates. These standards were challenged and remanded to the EPA by the D.C. Circuit Court of Appeals in 1999. The new particulates standard, if finalized, may require further reductions in SO2 for certain PPL subsidiaries and year-round NOx reductions commencing in 2010-2012 at SIP-call levels in Pennsylvania, and at slightly less stringent levels in Montana. Under the Clean Air Act, the EPA has been studying the health effects of hazardous air emissions from power plants and other sources, in order to determine what emissions should be regulated. The EPA has concluded that mercury is the power plant air toxin of greatest concern, and the EPA must determine by the end of this year whether it must be regulated. In order to make this determination, the EPA has obtained mercury and chlorine sampling and other data from electric generating units, including those operated by PPL subsidiaries. In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and has commenced enforcement activities against other utilities and has threatened to continue expanding its enforcement actions. At this time PPL is unable to predict whether such EPA enforcement actions will be brought with respect to any of its affiliates' plants. However, the EPA regional offices that regulate Pennsylvania and Montana plants have each indicated an intention to issue information requests to all utilities in their jurisdiction including PPL. Compliance with any such EPA enforcement actions could result in additional capital and operating expenses in amounts which are not now determinable, but which could be significant. The EPA is also proposing to revise its regulations in a way that will require power plants to meet "New Source" performance standards and/or undergo "New Source" review for many maintenance and repair activities that are currently exempted. Water and Residual Waste ------------------------ The final NPDES permit for the Montour plant contains stringent limits for iron and chlorine discharges. Depending on the results of a toxic reduction study, additional water treatment facilities or operational changes may be needed at this station. Later this year, EPA is expected to significantly lower the water quality standard for arsenic, which will affect wastewater discharge limits and groundwater standards at some existing ash basins at PPL stations. Abatement action at several of these basins could result in expenditures which are not now determinable, but which could be significant. EPA's proposed requirements for new or modified intake structures will affect where generating facilities are built, will establish intake design standards, and could lead to requirements for cooling towers at new power plants. These proposed regulations are expected to be finalized by August of 2001. Another new rule, also expected in 2001, will address existing structures. In the worst case, the rule could require new or modified cooling towers at one or more PPL stations. Each of these rules could impose significant costs on PPL, which are not now determinable. Superfund and Other Remediation ------------------------------- In 1995, PPL Electric Utilities entered into a consent order with the DEP to address a number of sites where it may be liable for remediation. This may include potential PCB contamination at certain PPL Electric Utilities' substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PPL Electric Utilities; and oil or other contamination which may exist at some of PPL Electric Utilities' former generating facilities. As of September 30, 2000, PPL Electric Utilities has completed work on approximately two-thirds of the sites included in the consent order. In 1996, PPL Gas Utilities entered into a similar consent order with the DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Any sites will likely be addressed under the consent order. At September 30, 2000, PPL Electric Utilities and PPL Gas Utilities had accrued approximately $22 million, representing the estimated amounts they will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above. In October 1999, the Montana Supreme Court held in favor of several citizens' groups that the right to a clean and healthful environment is a fundamental right guaranteed by the Montana Constitution. The court's ruling could result in significantly more stringent environmental laws and regulations, as well as an increase in citizens' suits under Montana's environmental laws. The effect on PPL Montana of any such changes in laws or regulations or any such increase in citizen suits is not currently determinable, but could be significant. Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in material additional operating costs for PPL subsidiaries that cannot be estimated at this time. Under the Montana Power acquisition agreement, PPL Montana is indemnified by Montana Power for any pre-acquisition environmental liabilities. However, this indemnification is conditioned on certain circumstances that can result in PPL Montana and Montana Power sharing in certain costs within limits set forth in the agreement. General ------- Due to the environmental issues discussed above or others, PPL subsidiaries may be required to modify, replace or cease operating certain facilities to comply with statutes, regulations and actions by regulatory bodies or courts. In this regard, PPL subsidiaries also may incur capital expenditures, operating expenses and other costs in amounts which are not now determinable, but which could be significant. Guarantees of Affiliated Companies PPL provides certain guarantees for its subsidiaries. Specifically, PPL guarantees all of the debt of PPL Capital Funding. As of September 30, 2000, PPL had guaranteed $1.6 billion of medium-term notes and $574 million of commercial paper issued by PPL Capital Funding. PPL had also guaranteed certain obligations of PPL Global subsidiaries, totaling $591 million at September 30, 2000. Additionally, PPL had guaranteed certain obligations of PPL EnergyPlus for up to $652 million under power purchase and sales agreements. In addition, PPL issued a letter of credit in connection with WPDL's purchase of Hyder shares of which $200 million was outstanding at September 30, 2000. 11. New Accounting Standards In June 2000, the FASB issued SFAS 138, which amends certain implementation issues of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." PPL intends to adopt SFAS 133 as amended by SFAS 137 and SFAS 138 as of January 1, 2001. In an effort to assess the financial statement impact of the adoption of SFAS 133 and SFAS 138, PPL evaluated its current commodity contracts and financial instruments. Contract evaluations were performed by a PPL project team of representatives from PPL's major business lines. Additionally, an outside consultant was retained to provide guidance to the team. Contracts that were identified as derivatives under SFAS 133 and SFAS 138 were also evaluated to determine if hedge accounting treatment could be applied. Based upon this evaluation, it appears that as of September 30, 2000, contracts which meet the definition of a derivative will have an insignificant impact on PPL's net income, but would decrease other comprehensive income by approximately $30 million. 12. Corporate Realignment On July 1, 2000, PPL and PPL Electric Utilities completed a corporate realignment in order to effectively separate PPL Electric Utilities' regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive marketplace. The realignment included PPL Electric Utilities' transfer of certain generation and related assets, and associated liabilities, to affiliates at book value. The net book value of this transfer, recorded as a distribution on common shares from PPL Electric Utilities to its parent, PPL, was $271 million. PPL Energy Funding, a holding company for virtually all of PPL's unregulated businesses, assumed $670 million of debt that PPL Electric Utilities had issued to other subsidiaries of PPL. As a result of the corporate realignment, PPL Electric Utilities' principal business is the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania; PPL Generation's principal business is owning and operating U.S. generating facilities through various subsidiaries; PPL EnergyPlus' principal business is wholesale and retail energy marketing; and PPL Global's principal business is the acquisition and development of both U.S. and international energy projects and ownership of international energy projects. PPL Energy Funding serves as the holding company for substantially all of PPL's unregulated businesses, including PPL Generation, PPL EnergyPlus and PPL Global. Other subsidiaries of PPL and PPL Electric Utilities are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC, and the NRC. PPL CORPORATION --------------- Item 2. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations - ------------------------- This discussion should be read in conjunction with the section entitled "Review of the Financial Condition and Results of Operations" in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 1999. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary. Results of Operations --------------------- The following discussion explains significant changes in principal items on the Consolidated Statement of Income, comparing the three months and nine months ended September 30, 2000, to the comparable periods in 1999. Certain items on the Consolidated Statement of Income have been impacted by PPL Global's consolidation of its investments in Emel and EC, and the acquisition of Montana generating assets. In the third quarter of 1999, PPL Global increased its investment in Emel, thereby achieving control of Emel and EC, an entity jointly owned by PPL Global and Emel. As a result, PPL Global consolidated the results of operations of Emel and EC in the third quarter of 1999, consolidating their accounts from January 1, 1999 through August 31, 1999. Therefore, the third quarter of 1999 contained eight months of consolidated Emel and EC activity, whereas the third quarter of 2000 included three months of activity. When discussing PPL's results of operations for the three months ended September 30, the results of Emel/EC are eliminated for purposes of comparability. Certain items on the Consolidated Statement of Income have also been impacted by the acquisition of Montana generating assets in December 1999. As such, the results of PPL Montana are included in the three and nine months ended September 30, 2000, but no such activity is reflected for these periods in 1999. When discussing PPL's results of operations for the three and nine months ended September 30, the results of PPL Montana are eliminated for purposes of comparability. The Consolidated Statement of Income reflects the results of past operations and is not intended as any indication of future operating results. Future operating results will necessarily be affected by various and diverse factors and developments. Furthermore, because results for interim periods can be disproportionately influenced by various factors and developments and by seasonal variations, the results of operations for interim periods are not necessarily indicative of results or trends for the year. Earnings Earnings per share were $.94 during the three months ended September 30, 2000, compared with $.68 per share during the same period in 1999. Both periods benefited by nonrecurring items of 13 cents per share. In the third quarter of 2000, operating expenses were reduced due to environmental insurance recoveries. Earnings during the third quarter of 1999 benefited from transactions recorded to securitize PPL Electric Utilities' stranded costs. Excluding these nonrecurring items, earnings per share were $.81 during the third quarter of 2000, or 47% higher than the adjusted earnings of $.55 per share during the third quarter of 1999. This earnings improvement was primarily due to higher margins from wholesale energy activities, an end of the one-year 4% rate reduction for delivery customers, reductions in real estate taxes, lower depreciation of fossil plants, and earnings of PPL Montana. The third quarter earnings improvement also reflects the benefit of fewer common shares outstanding resulting from stock repurchase programs. These earnings gains were partially offset by higher levels of interest expense. During the nine months ended September 30, 2000, earnings per share were $2.57, compared with $1.85 per share during the same period in 1999. After eliminating the aforementioned 13 cents per share nonrecurring items as noted above, and a similar environmental insurance recovery that provided 3 cents per share to earnings in the second quarter of 2000, adjusted earnings were $2.41 per share for the first nine months of 2000, compared with $1.72 per share for the same period in 1999. This earnings improvement of 69 cents per share reflects similar reasons noted above, as well as a gain on the sale of emission allowances that reduced operating expenses in the second quarter of 2000. Electric Energy Sales Retail Delivery --------------- PPL retail electricity delivery of consolidated subsidiaries for 2000 and 1999 were as follows (millions of kWh):
September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Domestic - PPL Electric Utilities 8,321 8,221 25,624 25,086 International - PPL Global 777 709 2,352 2,181 ----- ----- ------ ------- Total 9,098 8,930 27,976 27,267 ===== ===== ====== =======
PPL Electric Utilities' retail electricity delivered in the three months ended September 30, 2000, increased by 100 million kWh, or 1.2%, from the comparable period in 1999 due to higher industrial usage. The increase of 538 million kWh, or 2.1%, in the nine months ended September 30, 2000, from the same period in 1999, was due to higher usage by commercial and industrial customers. PPL Global's Emel/EC subsidiaries delivered 777 million kWh and 2,352 million kWh of retail electricity in the three and nine months ended September 30, 2000, respectively, to customers in Chile and El Salvador. These figures are reported on a one month lag basis. Retail Supply ------------- PPL retail electricity supply of consolidated subsidiaries for 2000 and 1999 were as follows (millions of kWh):
September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Domestic - PPL EnergyPlus 2,740 3,029 9,103 7,096 - PPL Electric Utilities 6,600 5,451 19,283 18,136 International - PPL Global 777 709 2,352 2,181 ------ ----- ------ ------- Total 10,117 9,189 30,738 27,413 ====== ===== ====== =======
Beginning on January 1, 1999, Pennsylvania electric customers were allowed to choose their electricity supplier under the Customer Choice Act. Customers choosing an alternate supplier continue to have their electricity delivered by the utility that serves their territory. PPL Electric Utilities is a PLR for customers in its service territory who have not chosen a supplier under the Customer Choice Act. Beginning July 1, 2000, PPL Electric Utilities purchases its energy from PPL EnergyPlus to meet this supply. Domestic electricity supplied to retail customers increased by 860 million kWh, or 10.1%, when comparing the three months ended September 30, 2000, to the same period in 1999. PPL Electric Utilities' supply as a PLR increased due to industrial delivered sales growth coupled with fewer sales losses to alternate suppliers. PPL EnergyPlus experienced a decrease in third quarter sales from 1999 to 2000. PPL EnergyPlus sells energy in both wholesale and retail markets. In many of the areas in which PPL EnergyPlus participates, better opportunities exist at this time in wholesale markets. During such times, retail volumes may be expected to decline. Domestic electricity supplied to retail customers increased by 3,154 million kWh, or 12.5%, when comparing the nine months ended September 30, 2000, to the same period in 1999. The increase was attributed to higher PPL EnergyPlus sales to commercial and industrial classes, and an increase in PPL Electric Utilities' PLR load due to an increase in sales delivered to commercial and industrial customers, and a decrease in sales lost to alternate suppliers. PPL Global's Emel/EC subsidiaries supplied 777 million kWh and 2,352 million kWh of retail electricity in the three and nine months ended September 30, 2000, respectively. These figures are reported on a one month lag basis. These subsidiaries purchase their requirements under longer term contracts and on the open market for delivery to their customers. Wholesale Sales --------------- PPL wholesale electricity supply for 1999 and 2000 is shown in the following table (millions of kWh). Effective July 1, 2000, the unregulated wholesale electric supply business of PPL Electric Utilities was transferred to PPL EnergyPlus. Accordingly, the following data for periods prior to July 1, 2000 has been restated to reflect the corporate realignment:
September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Domestic - PPL EnergyPlus 6,793 7,570 23,088 23,426 - PPL Montana 1,968 6,142 - PPL Electric Utilities 205 231 633 635 - PPL Maine 533 153 1,154 239 ----- ----- ------ ------- Total 9,499 7,954 31,017 24,300 ===== ===== ====== =======
Wholesale electricity sales increased by 1,545 million kWh, or 19.4%, when comparing the three months ended September 30, 2000 to the same period in 1999. The increase was primarily the result of the acquisition of Montana generating assets in December 1999 and increased trading activities by PPL Maine, offset somewhat by the expiration of bulk power contracts and decreased wholesale activity due to increased retail load obligations. Wholesale electricity sales increased by 6,717 million kWh, or 27.6%, in the nine months ended September 30, 2000, when compared to the same period in 1999. The increase was due to the acquisitions of generating assets in Montana in December 1999 and in Maine in May 1999, partially offset by the expiration of bulk power contracts. Operating Revenues Electric -------- The increase (decrease) in revenues from electric operations was attributable to the following (millions of dollars): September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- Retail Electric Revenue PPL Electric Utilities Electric delivery $ (5) $ 9 PLR electric generation supply 14 (14) PPL EnergyPlus Electric generation supply 4 86 PPL Global - Emel/EC Electric delivery (100) 40 Other 5 18 ----- ---- $ (82) $139 ===== ==== After excluding the impact of Emel/EC for purposes of comparability, operating revenues from retail electric operations increased by $18 million during the three months ended September 30, 2000, when compared with the same period in 1999. This increase was primarily due to PPL Electric Utilities' energy revenues as a PLR. For the nine months ended September 30, 2000, operating revenues from retail electric operations increased by $139 million. This increase was primarily due to higher PPL EnergyPlus sales volumes and higher revenues from Emel/EC. Natural Gas and Propane ----------------------- The increase in revenues from natural gas and propane was attributable to the following (millions of dollars): September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- PPL Gas Utilities $ 3 $ 8 PPL EnergyPlus 8 27 --- --- $11 $35 === === Both PPL Gas Utilities and PPL EnergyPlus had higher retail gas sales for the three and nine months ended September 30, 2000, when compared to the same periods in 1999. The increase in PPL Gas Utilities' revenues reflects off- system revenues in 2000. The PPL EnergyPlus' increase was related to intensified gas marketing efforts and increased retail pricing attributed to higher wholesale gas commodity costs. Wholesale Energy Marketing and Trading -------------------------------------- The increase (decrease) in revenues from wholesale energy marketing and trading activities was attributable to the following (millions of dollars):
September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- PPL Electric Utilities/PPL EnergyPlus Bilateral Sales $ 69 $206 PJM (8) 6 Cost-based contracts (12) (30) Gas & oil sales (32) (11) PPL Montana 81 205 PPL Maine 25 59 Other (2) (3) ---- ---- $121 $432 ==== ====
After excluding the impact of PPL Montana for the purposes of comparability, wholesale energy marketing and trading revenues increased by $40 million and $227 million for the three and nine months ended September 30, 2000, when compared to the same periods in 1999. The change in PPL Electric Utilities' bilateral sales revenues in both periods reflects higher market pricing and sales volumes to other counterparties. Wholesale revenues of PPL Maine have been recorded since acquisition in May 1999. Energy Related Businesses The contribution to operating income of energy related businesses decreased by $21 million for the three months ended September 30, 2000, compared with the same period in 1999. This was primarily due to an increase in project development costs by PPL Global, administrative expenses of PPL Global's Chilean affiliates, and adjustments to tax credits pending receipt of favorable private letter ruling by the IRS. The contribution to operating income of energy related business also decreased by $21 million for the nine months ended September 30, 2000, compared with the same period in 1999. This decrease was attributable to the foregoing factors. Energy Purchases The increase (decrease) in energy purchases was attributable to the following (millions of dollars): September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- PPL EnergyPlus $(16) $141 PPL Maine 4 49 PPL Global - Emel/EC (47) 30 PPL Montana 45 87 Other 1 14 ---- ---- $(13) $321 ==== ==== After excluding the impact of Emel/EC and PPL Montana for purposes of comparability, energy purchases decreased by $11 million during the three months ended September 30, 2000, compared with the same period in 1999. This decrease was attributed to lower priced power purchases needed to supply wholesale and retail activities. After excluding the impact of PPL Montana for the purposes of comparability, energy purchases increased by $234 million during the nine months ended September 30, 2000, compared with the same period in 1999. This increase was attributed to higher wholesale purchases needed to supply retail load obligation. Other Operation Expenses Other operation expenses decreased by $21 million for the three months ended September 30, 2000, when compared to the same period in 1999. This decrease was primarily due to an environmental insurance recovery. For the nine months ended September 30, 2000, other operation expenses decreased by $11 million when compared to the same period in 1999. After excluding the impacts of PPL Montana for purposes of comparability, these expenses decreased by $50 million when compared with the same period in 1999. This decrease was due primarily to a gain on the sale of emission allowances and insurance settlements for coverage for past and potential future environmental liabilities. Maintenance Expenses Maintenance expenses increased by $25 million for the nine months ended September 30, 2000, when compared with the same period in 1999. After excluding the impacts of PPL Montana for purposes of comparability, maintenance expenses increased by $14 million during the nine months ended September 30, 2000. This increase was primarily due to higher maintenance costs at the Susquehanna generating station. Depreciation and Amortization Depreciation and amortization expenses decreased by $15 million for the three months ended September 30, 2000, compared with the same period in 1999. After excluding the impacts of Emel/EC and PPL Montana for purposes of comparability, depreciation and amortization expenses decreased by $8 million during the third quarter of 2000. This decrease was primarily due to a change in the estimated remaining useful lives of certain PPL generating plants. PPL subsidiaries periodically review the depreciable lives of their fixed assets. In conjunction with corporate realignment activities, undertaken in early 2000, studies were conducted of depreciable lives of certain generation assets. These studies indicated that the estimated economic lives for certain generation assets were longer than currently used to calculate depreciation for financial statement purposes. Therefore, effective July 1, 2000, PPL subsidiaries revised the estimated economic lives for fossil generation and pipeline assets. This change in estimated useful lives increased third quarter net income by about $5 million, or 3 cents per share. The change in estimated economic lives is expected to reduce depreciation expense by approximately $33 million per year for the next several years from previous levels. Depreciation and amortization increased by $3 million for the nine months ended September 30, 2000, when compared with the same period in 1999. After excluding the impacts of PPL Montana for purposes of comparability, these expenses decreased by $9 million during the nine months ended September 30, 2000, when compared with the same period in 1999. This decrease was primarily due to the change in estimated remaining useful lives of certain generating plants, as discussed above. Income Taxes Income taxes increased by $97 million and $123 million for the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. These changes were primarily due to an increase in PPL's pre- tax book income and a release of deferred income taxes no longer required due to securitization in the third quarter of 1999. Financing Costs Interest expense increased by $14 million and $71 million, respectively, for the three and nine months ended September 30, 2000, compared with the same periods in 1999. This was primarily due to the issuance of transition bonds in August 1999, the issuances of medium-term notes between November 1999 and September 2000, the financing of the Montana assets (acquired in December 1999) and the consolidation of Emel/EC beginning in the third quarter of 1999. Offsetting these increases were reductions in interest due to the retirement of first mortgage bonds and lower levels of commercial paper balances. Financial Condition ------------------- Energy Marketing and Trading Activities PPL subsidiaries purchase and sell electric capacity and energy at the wholesale level under their FERC market-based tariffs. PPL subsidiaries also have entered into agreements to sell firm capacity or energy under their market- based tariffs to certain entities located inside and outside of the PJM power pool. PPL subsidiaries enter into these agreements to market available energy and capacity from their generating assets and to profit from market price fluctuations. PPL subsidiaries are actively managing their portfolios to attempt to capture opportunities and limit their exposure to volatile prices. PPL subsidiaries also purchase and sell energy futures contracts as well as other commodity-based financial instruments in accordance with risk management objectives and strategies. Market Risk Sensitive Instruments Commodity Price Risk -------------------- PPL uses various methodologies to simulate forward price curves in the energy markets to estimate the size and probability of changes in market value resulting from commodity price movements. The methodologies require several key assumptions, including selection of confidence levels, the holding period of the commodity positions, and the depth and applicability to future periods of historical commodity price information. In connection with the corporate realignment, effective July 1, 2000, the commodity positions of PPL Electric Utilities were transferred to PPL EnergyPlus. As of September 30, 2000, PPL EnergyPlus estimated that a 10% adverse movement in market prices across all geographic areas and time periods could have decreased the value of its trading portfolio by approximately $1 million. For PPL EnergyPlus' non-trading portfolio, a 10% adverse movement in market prices across all geographic areas and time periods could have decreased the value of this portfolio by approximately $31 million at September 30, 2000. However, this would have been offset by an inverse change in the value of the underlying commodity, the electricity generated. As of September 30, 2000, PPL Montana estimated that a 10% adverse movement in market prices would have a negligible impact on its trading portfolio, whereas a 10% adverse movement in market prices could have decreased the value of its non-trading portfolio by approximately $76 million. This decrease also would have been offset by an inverse change in the underlying commodity, the electricity generated. In addition to commodity price risk, PPL's commodity positions are also subject to operational and event risks such as increases in load demand and forced outages at generating plants. Interest Rate Risk ------------------ PPL and its subsidiaries have issued debt to finance operations and to provide funds for unregulated energy investments, which creates interest rate risk. PPL manages its interest rate risk by using financial derivative products to adjust the mix of fixed and floating-rate interest rates in its debt portfolios, adjusting the duration of its debt portfolios and locking in U.S. treasury rates (and interest rate spreads over treasuries) in anticipation of future financing, when appropriate. Risk limits are designed to balance risk exposure to volatility in interest expense and increases in market valuation of PPL's debt obligation due to changes in the absolute level of interest rates. See Note 8 to Financial Statements for a discussion of financial derivative instruments outstanding at September 30, 2000. At September 30, 2000, PPL's potential annual exposure to increased interest expense due to a 10% increase in interest rates was estimated at $8 million. PPL is also exposed to changes in the fair value of its debt portfolio. At September 30, 2000, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio through a 10% adverse movement in interest rates was about $56 million. PPL utilizes various risk management instruments to reduce its exposure to adverse interest rate movements for future anticipated financings. While PPL is exposed to changes in the fair value of these instruments, they are designed such that any economic loss in value should be offset by interest rate savings at the time the future anticipated financing is completed. At September 30, 2000, PPL estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was about $6 million. Market events that are inconsistent with historical trends could cause actual results to differ from estimated levels. Nuclear Decommissioning Fund - Securities Price Risk ---------------------------------------------------- In connection with the corporate realignment, effective July 1, 2000, the nuclear decommissioning fund for the Susquehanna nuclear plant was transferred from PPL Electric Utilities to PPL Susquehanna. PPL Susquehanna maintains trust funds, as required by the NRC, to fund certain costs of decommissioning Susquehanna. At September 30, 2000, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Consolidated Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the value of fixed-rate, fixed-income securities are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At September 30, 2000, a 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $19 million reduction in the fair value of the trust assets. Acquisitions Refer to Note 9 to the Financial Statements for information regarding acquisitions. At September 30, 2000, PPL Global had investments in foreign facilities including consolidated investments in Emel/EC and CEMAR. See Note 5 for information on PPL Global's unconsolidated investments. PPL Global continues to pursue opportunities to develop and acquire electric generation, transmission and distribution facilities in the U.S. and abroad. In addition to the specific acquisition activity discussed in Note 9, PPL Global has continued developing energy projects in Connecticut, Pennsylvania, Arizona and New York. Financing Activities Refer to Note 7 to the Financial Statements for information regarding financing activities. Financing and Liquidity Cash and cash equivalents increased on a net basis by $2 million more during the nine months ended September 30, 2000, compared with the same period in 1999. The reasons for this change were: . A $1 million decrease in cash provided by operating activities. . A $68 million increase in cash used in investing activities, primarily due to PPL Global's investments in CEMAR, Hyder and South West Power Partners, the entity that is developing PPL Global's Griffith project in Arizona. These investing outflows were partially offset by proceeds from the PPL Montana sale - leaseback. . A $71 million increase in cash provided by financing activities. This increase was due to higher net issuances of debt and equity securities during the nine months ended September 30, 2000, compared with the same period in 1999. Financial Indicators Earnings for the twelve months ended September 30, 2000 and 1999 were impacted by nonrecurring items which are listed in the "Earnings" discussion in the Results of Operations of this Form 10-Q and the Form 10-K for the year ended December 31, 1999. The following financial indicators reflect the elimination of these impacts from earnings, and provide an additional measure of the underlying earnings performance of PPL and its subsidiaries: 12 Months Ended September 30, ----------------------------- 2000 1999 ---- ---- Earnings per share, as adjusted $ 3.04 $2.13 Return on average common equity 26.50% 13.90% Ratio of pre-tax income to interest charges 2.90 3.06 Dividends declared per share $1.045 $1.00 Environmental Matters See Note 10 to Financial Statements for a discussion of environmental matters. Expenditures to meet the 2000 acid rain and 2003 NOx reduction requirements are included in the table of projected construction expenditures in the section entitled "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations in PPL's 1999 Form 10-K. It is currently expected that additional capital expenditures and operating costs for environmental compliance under the Clean Air Act will be incurred beyond 2002 in amounts which are not now determinable, but which could be significant. Capital expenditures through the year 2003 to correct groundwater degradation at fossil-fueled generating stations and to address waste water control at facilities, pursuant to DEP regulations are included in the table of construction expenditures in the section entitled "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations in PPL's 1999 10-K. Additional capital expenditures could be required beyond the year 2003 in amounts which are not now determinable, but which could be significant. Actions taken to correct groundwater degradation and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable, but which could be significant. Increasing Competition The electric utility industry has experienced, and will continue to experience, a significant increase in the level of competition in the energy supply market at both the state and federal level. Refer to PPL's 1999 Form 10- K for a discussion of state and federal activities in this regard. PPL EnergyPlus is serving industrial and commercial customers in Pennsylvania, New Jersey, Delaware, Maine and Montana. PPL EnergyPlus is licensed to sell energy in Maryland and Massachusetts and has filed an application for such a license in New York. Corporate Realignment On July 1, 2000, PPL and PPL Electric Utilities completed a corporate realignment in order to effectively separate PPL Electric Utilities' regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive market place. The corporate realignment included the following key features: . PPL Electric Utilities transferred its generating and certain other related assets, along with associated liabilities, to new unregulated generating subsidiaries of PPL Generation. In connection with the transfer, PPL Energy Funding, the parent company of PPL Generation, assumed $670 million aggregate principal amount of PPL Electric Utilities' debt issued to affiliated companies. . PPL Electric Utilities also transferred assets constituting its wholesale energy marketing business, along with associated liabilities, to its wholly-owned subsidiary, PPL EnergyPlus, and transferred its interest in PPL EnergyPlus to PPL Energy Funding. . PPL Electric Utilities distributed, as a distribution on common stock in a "tax-free spin-off," all of the outstanding shares of stock of PPL Energy Funding to PPL, which resulted in PPL Energy Funding becoming a wholly-owned subsidiary of PPL. . PPL's independent power subsidiary, PPL Global, also transferred its U.S. electric generating subsidiaries to PPL Generation. . PPL Electric Utilities entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet PPL Electric Utilities' obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. As a result of the corporate realignment, PPL Electric Utilities' principal businesses are the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania and the supply of electricity to retail customers as a PLR; PPL Generation's principal business is owning and operating U.S. generating facilities through various subsidiaries; PPL EnergyPlus' principal business is wholesale and retail energy marketing; and PPL Global's principal business is the acquisition and development of both U.S. and international energy projects and ownership of international energy projects. PPL Energy Funding serves as the parent company for substantially all of PPL's unregulated businesses, including PPL Generation, PPL EnergyPlus and PPL Global. Other subsidiaries of PPL and PPL Electric Utilities are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC and the NRC. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Reference is made to "Market Risk Sensitive Instruments," in Review of Financial Condition and Results of Operations. PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES - --------------------------------------------------- Item 1. Financial Statements - ---------------------------- In the opinion of PPL Electric Utilities, the unaudited financial statements included herein reflect all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 2000 and December 31, 1999, and the Consolidated Statement of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 2000 and 1999. All nonutility operating transactions are included in "Other Income" in PPL Electric Utilities' Consolidated Statement of Income. These financial statements have been impacted by the corporate realignment on July 1, 2000. See Note 8 to Financial Statements for additional information. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars)
Three Months Nine Months Ended September 30, Ended September 30, --------------------- --------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Operating Revenues Electric.......................................................... $ 527 $ 635 $ 1,847 $ 1,886 Wholesale energy marketing and trading............................ 39 489 842 1,122 Energy related businesses......................................... 4 4 14 11 --------- --------- --------- --------- Total............................................................. 570 1,128 2,703 3,019 --------- --------- --------- --------- Operating Expenses Operation Electric fuel................................................... 131 200 351 Energy purchases for retail load and wholesale.................. 299 457 1,078 1,070 Other........................................................... 56 155 282 431 Amortization of recoverable transition costs.................... 50 48 159 135 Maintenance....................................................... 16 45 122 140 Depreciation and amortization..................................... 26 59 142 176 Taxes, other than income.......................................... 20 39 119 130 Energy related businesses......................................... 3 3 16 10 --------- --------- --------- --------- Total............................................................. 470 937 2,118 2,443 --------- --------- --------- --------- Operating Income..................................................... 100 191 585 576 --------- --------- --------- --------- Other Income - Net................................................... 4 7 27 29 --------- --------- --------- --------- Income Before Interest and Income Taxes.............................. 104 198 612 605 Interest Expense..................................................... 59 59 184 155 --------- --------- --------- --------- Income Before Income Taxes and Extraordinary Items................... 45 139 428 450 Income Taxes......................................................... 14 (27) 158 91 --------- --------- --------- --------- Income Before Extraordinary Items.................................... 31 166 270 359 --------- --------- --------- --------- Extraordinary Items (net of income taxes)............................ (59) (59) --------- --------- --------- --------- Net Income Before Dividends on Preferred Stock....................... 31 107 270 300 Dividends on Preferred Stock......................................... 6 6 19 30 --------- --------- --------- --------- Earnings Available to PPL Corporation................................ $ 25 $ 101 $ 251 $ 270 ========= ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS PPL Electric Utilities Corporation and Subsidiaries (Unaudited) (Millions of Dollars)
Nine Months Ended September 30, ---------------------------- 2000 1999 ---------- ---------- Net Cash Provided by Operating Activities....................................... $ 492 $ 459 Cash Flows From Investing Activities Expenditures for property, plant and equipment............................... (199) (201) Loan repayment by parent and affiliates...................................... 156 136 Sale of nuclear fuel to trust................................................ 27 14 Other investing activities - net............................................. (4) (10) ---------- ---------- Net cash used in investing activities...................................... (20) (61) ---------- ---------- Cash Flows From Financing Activities Issuance of long-term debt................................................... 2,420 Retirement of long-term debt................................................. (327) (1,467) Purchase of treasury stock................................................... (632) Retirement of preferred stock................................................ (369) Termination of nuclear fuel lease............................................ (154) Payments on capital lease obligation......................................... (11) (42) Payment of common and preferred dividends.................................... (94) (188) Cash of subsidiaries divested in corporate realignment....................... (73) Net increase in short-term debt.............................................. 184 130 Other financing activities-net............................................... (89) ---------- ---------- Net cash used in financing activities...................................... (475) (237) ---------- ---------- Net Increase in Cash and Cash Equivalents....................................... (3) 161 Cash and Cash Equivalents at Beginning of Period................................ 52 31 ---------- ---------- Cash and Cash Equivalents at End of Period...................................... $ 49 $ 192 ========== ========== Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest (net of amount capitalized)....................................... $ 173 $ 130 Income taxes............................................................... $ 216 $ 143
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED BALANCE SHEET PPL Electric Utilities Corporation and Subsisiaries (Unaudited) (Millions of Dollars)
September 30, December 31, 2000 1999 ------------ ----------- Assets Current Assets Cash and cash equivalents........................................... $ 49 $ 52 Accounts receivable (less reserve: 2000, $22; 1999, $18)............ 270 274 Unbilled revenues................................................... 138 275 Fuel, materials and supplies - at average cost...................... 31 175 Prepayments......................................................... 50 87 Unrealized energy trading gains..................................... 26 Other............................................................... 61 78 -------- ---------- 599 967 -------- ---------- Investments Loan to parent and its affiliates................................... 46 489 Nuclear plant decommissioning trust fund............................ 255 Investment in unconsolidated affiliate at equity.................... 17 Other............................................................... 15 15 -------- ---------- 61 776 -------- ---------- Property, Plant and Equipment Electric utility plant in service - net Transmission and distribution..................................... 2,166 2,193 Generation........................................................ 1,620 General........................................................... 188 208 -------- ---------- 2,354 4,021 Construction work in progress - at cost............................. 45 139 Nuclear fuel owned and leased - net................................. 139 -------- ---------- Electric utility plant - net...................................... 2,399 4,299 Gas and oil utility plant - net..................................... 26 Other property - net................................................ 5 20 -------- ---------- 2,404 4,345 -------- ---------- Regulatory Assets and Other Noncurrent Assets Recoverable transition costs........................................ 2,487 2,647 Other............................................................... 335 357 -------- ---------- 2,822 3,004 -------- ---------- $ 5,886 $ 9,092 ======== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED BALANCE SHEET PPL Electric Utilities Corporation and Subsidiaries (Unaudited) (Millions of Dollars)
September 30, December 31, 2000 1999 ------------ ----------- Liabilities and Equity Current Liabilities Short-term debt................................................................... $ 4 $ 183 Long-term debt.................................................................... 237 352 Above market NUG purchases........................................................ 99 Accounts payable.................................................................. 74 284 Taxes and interest accrued........................................................ 34 116 Dividends payable................................................................. 45 6 Unrealized energy trading losses.................................................. 28 Other............................................................................. 77 220 ---------- ---------- 471 1,288 ---------- ---------- Long-term Debt........................................................................ 2,941 3,153 ---------- ---------- Deferred Credits and Other Noncurrent Liabilities Deferred income taxes and investment tax credits.................................. 743 1,528 Above market NUG purchases........................................................ 674 Other............................................................................. 217 806 ---------- ---------- 960 3,008 ---------- ---------- Commitments and Contingent Liabilities................................................ ---------- ---------- Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company debentures................................. 250 250 ---------- ---------- Preferred stock With sinking fund requirements.................................................... 47 47 Without sinking fund requirements................................................. 50 50 ---------- ---------- 97 97 ---------- ---------- Shareowner's Common Equity Common stock...................................................................... 1,476 1,476 Additional paid-in capital........................................................ 55 55 Treasury stock.................................................................... (632) (632) Earnings reinvested............................................................... 284 419 Accumulated other comprehensive income............................................ (6) Capital stock expense and other................................................... (16) (16) ---------- ---------- 1,167 1,296 ---------- ---------- $ 5,886 $ 9,092 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY PPL Electric Utilities Corporation and Subsidiaries (Unaudited) (Millions of Dollars)
For the Three Months Ended For the Nine Months Ended September 30, September 30, -------------------------- ------------------------- 2000 1999 2000 1999 ----------- -------- ---------- --------- Common stock at beginning of period..................................... $ 1,476 $ 1,476 $ 1,476 $ 1,476 ---------- --------- --------- ---------- Common stock at end of period........................................... 1,476 1,476 1,476 1,476 ---------- --------- --------- ---------- Additional paid-in capital at beginning of period....................... 55 70 55 70 Other................................................................... (15) (15) ---------- --------- --------- ---------- Additional paid-in capital at end of period............................. 55 55 55 55 ---------- --------- --------- ---------- Treasury stock at beginning of period................................... (632) 0 (632) 0 Purchase of treasury stock........................................... (632) (632) ---------- --------- --------- ---------- Treasury stock at end of period......................................... (632) (632) (632) (632) ---------- --------- --------- ---------- Earnings reinvested at beginning of period.............................. 569 262 419 210 Net income (b)....................................................... 25 101 251 270 Cash dividends declared on common stock.............................. (39) (36) (115) (153) Common distribution in corporate realignment......................... (271) (271) ---------- --------- --------- ---------- Earnings reinvested at end of period.................................... 284 327 284 327 ---------- --------- --------- ---------- Accumulated other comprehensive income at beginning of period........... (6) (6) (6) (6) Transfer of minimum pension liability in corporate realignment (b).................................................... 6 6 ---------- --------- --------- ---------- Accumulated other comprehensive income at end of period................. 0 (6) 0 (6) ---------- --------- --------- ---------- Capital stock expense at beginning of period............................ (16) (20) (16) (20) Other................................................................... 4 4 ---------- --------- --------- ---------- Capital stock expense at end of period.................................. (16) (16) (16) (16) ---------- --------- --------- ---------- Total Shareowner's Common Equity........................................ $ 1,167 $ 1,204 $ 1,167 $ 1,204 ========== ========= ========= ========== (Thousands of Shares) Common stock shares at beginning of period (a).......................... 102,230 157,300 102,230 157,300 Treasury stock purchased............................................. (55,070) (55,070) ---------- --------- --------- ---------- Common stock shares at end of period.................................... 102,230 102,230 102,230 102,230 ========== ========= ========= ========== (a) No par value. 170 million shares authorized. All common shares of PPL Electric Utilities stock are owned by PPL. (b) Statement of Comprehensive Income: Net income.......................................................... $ 25 $ 101 $ 251 $ 270 Other comprehensive income, net of tax: Minimum pension liability transferred in corporate realignment.. 6 6 ---------- --------- --------- ---------- Total other comprehensive income.................................... 6 6 ---------- --------- --------- ---------- Comprehensive Income................................................ $ 31 $ 101 $ 257 $ 270 ========== ========= ========= ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 42 PPL ELECTRIC UTILITIES CORPORATION Notes to Consolidated Financial Statements ------------------------------------------ Terms and abbreviations appearing in Notes to Consolidated Financial Statements are explained in the glossary. 1. Interim Financial Statements Certain information in footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, has been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. These financial statements should be read in conjunction with the financial statements and notes included in PPL Electric Utilities' Annual Report to the SEC on Form 10-K for the year ended December 31, 1999. Certain amounts in the September 30, 1999 and December 31, 1999 financial statements have been reclassified to conform to the presentation in the September 30, 2000 financial statements. 2. Summary of Significant Accounting Policies Leases In March 2000, PPL Electric Utilities terminated its nuclear fuel lease and repurchased $154 million of nuclear fuel from the lessor energy trust. In July 2000, all nuclear fuel was transferred to PPL Susquehanna, the new unregulated nuclear generating subsidiary of PPL Generation, in connection with the corporate realignment. See Note 8 for additional information. 3. Sales to Other Electric Utilities As part of the corporate realignment on July 1, 2000, PPL Electric Utilities' contracts for sales to other electric utilities were assigned to PPL EnergyPlus, which was transferred to an unregulated subsidiary of PPL. See Note 8 to Financial Statements for information on the corporate realignment. 4. Credit Arrangements and Financing Activities PPL Electric Utilities issues commercial paper. At September 30, 2000, PPL Electric Utilities had no commercial paper outstanding. In order to enhance liquidity, and as a credit back-stop to the commercial paper programs, PPL Electric Utilities, PPL Capital Funding and PPL (as guarantor for PPL Capital Funding) share a 364-day $750 million credit facility and a five-year $300 million credit facility, each with a group of banks. At September 30, 2000, no borrowings were outstanding under either facility. In April 2000, PPL Electric Utilities redeemed and retired all of its outstanding First Mortgage Bonds, 9-1/4% Series due 2019, at par value of $27.6 million through the maintenance and replacement fund provisions of its Mortgage. In June 2000, PPL Electric Utilities paid and retired all of its outstanding first mortgage bonds, 6% Series due 2000, at par value of $125 million. PPL Transition Bond Company, LLC retired the following class A-1 Bonds: in March 2000, $62.2 million; in June 2000, $61.3 million; and in September 2000, $52.3 million. 5. Commitments and Contingent Liabilities Nuclear Insurance In connection with the corporate realignment, effective July 1, 2000, ownership and operation of the Susquehanna nuclear station was transferred to PPL Susquehanna, which became the insured under PPL Electric Utilities' existing nuclear insurance programs. Environmental Matters In connection with the corporate realignment, effective July 1, 2000, any air, water and residual waste contingent liabilities associated with the generation assets of PPL Electric Utilities were assumed by PPL Generation. Superfund and Other Remediation ------------------------------- In 1995, PPL Electric Utilities entered into a consent order with the DEP to address a number of sites where PPL Electric Utilities may be liable for remediation. This may include potential PCB contamination at certain PPL Electric Utilities' substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PPL Electric Utilities; and oil or other contamination which may exist at some of PPL Electric Utilities' former generating facilities. As of September 30, 2000, PPL Electric Utilities has completed work on approximately two-thirds of the sites included in the consent order. At September 30, 2000, PPL Electric Utilities had accrued approximately $6 million, representing the amount it estimates it will have to spend for site remediation, including those sites covered by its consent order mentioned above. 6. Related Party Transactions As part of the corporate realignment, PPL Electric Utilities entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet its obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. Under the terms of these agreements, this electricity is purchased by PPL Electric Utilities at the applicable shopping credits authorized by the PUC, plus nuclear decommissioning costs, less state taxes. These purchases totaled $256 million for the three months ended September 30, 2000, and are included in "Energy purchases for retail load and wholesale" on the Consolidated Statement of Income. Also as part of the corporate realignment, PPL Electric Utilities executed a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric Utilities purchases electricity from the NUGs at contractual rates, and then sells the electricity at the same price to PPL EnergyPlus. These revenues totaled $39 million for the three months ended September 30, 2000, and are included in Operating Revenues as "Wholesale energy marketing and trading" on the Consolidated Statement of Income. 7. New Accounting Standards In June 2000, the FASB issued SFAS 138, which amends certain implementation issues of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." PPL Electric Utilities intends to adopt SFAS 133 as amended by SFAS 137 and SFAS 138 as of January 1, 2001. In an effort to assess the financial statement impact of the adoption of SFAS 133 and SFAS 138, PPL evaluated its current commodity contracts and financial instruments. Contract evaluations were performed by a PPL project team of representatives from PPL's major business lines. Additionally, an outside consultant was retained to provide guidance to the team. Contracts that were identified as derivatives under SFAS 133 and SFAS 138 were also evaluated to determine if hedge accounting treatment could be applied. Based upon this evaluation, it appears that as of September 30, 2000, contracts which meet the definition of a derivative will have an insignificant impact on PPL Electric Utilities' net income and other comprehensive income. 8. Corporate Realignment On July 1, 2000, PPL and PPL Electric Utilities completed a corporate realignment in order to effectively separate PPL Electric Utilities' regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive market-place. The realignment included PPL Electric Utilities' transfer of certain generation and related assets, along with the associated liabilities, to PPL Energy Funding, a wholly-owned subsidiary. PPL Electric Utilities then distributed its investment in PPL Energy Funding to PPL. The net book value of this transfer, recorded effective July 1, 2000, was $271 million. This $271 million non-cash dividend to PPL had a significant impact on the consolidated assets and liabilities of PPL Electric Utilities. As indicated on the Consolidated Statement of Cash Flows of PPL Electric Utilities, approximately $73 million of cash and cash equivalents of consolidated affiliates was divested as a result of the realignment distribution. The following major reductions in consolidated assets and liabilities resulted from the non-cash dividend (millions of dollars): Assets Cash and cash equivalents $ 73 Other current assets 331 Investments 578 Property, plant and equipment 1,969 Other noncurrent assets 16 ------ 2,967 ------ Liabilities and Equity Current liabilities 767 Deferred credits and other noncurrent liabilities 1,935 Minimum pension liability component of accumulated other comprehensive income (6) ------ 2,696 ------ Net Dividend $ 271 ====== As a result of the corporate realignment, PPL Electric Utilities' principal business is the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania. Other subsidiaries of PPL and PPL Electric Utilities are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC, and the NRC. PPL ELECTRIC UTILITIES CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations - --------------------- This discussion should be read in conjunction with the section entitled "Review of the Financial Condition and Results of Operations" in PPL Electric Utilities' Annual Report to the SEC on Form 10-K for the year ended December 31, 1999. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary. Results of Operations --------------------- The following discussion explains significant changes in principal items on the Consolidated Statement of Income comparing the three months and nine months ended September 30, 2000, to the comparable periods in 1999. Certain items on the Consolidated Statement of Income have been impacted by the corporate realignment undertaken by PPL and PPL Electric Utilities effective July 1, 2000. See Note 8 to the Financial Statements for information regarding the corporate realignment. The Consolidated Statement of Income of PPL Electric Utilities for the three months ended September 30, 2000 includes the results of its remaining businesses, the transmission and distribution of electricity in its franchised service territory and the supply of electricity as a PLR under Pennsylvania's Customer Choice Act. The results for the first six months of 2000 and the nine months ended September 30, 1999 also include PPL Electric Utilities' former electric generation and unregulated wholesale and retail marketing functions. When discussing the results of operations for the three and nine month periods, the estimated results of operations of the electric generation and unregulated marketing functions for the three months ended September 30, 1999 are eliminated for purposes of comparability. As an additional measure of comparability, pro forma financial statements are provided at the end of "Management's Discussion and Analysis of Financial Condition and Results of Operations." This pro forma information presents a balance sheet and income statements as if PPL Electric Utilities had been realigned in all periods, thereby presenting these statements for the remaining businesses of PPL Electric Utilities. The Consolidated Statement of Income reflects the results of past operations and is not intended as any indication of future operating results. Future operating results will necessarily be affected by various and diverse factors and developments, particularly the corporate realignment as discussed in Note 8. Furthermore, because results for interim periods can be disproportionately influenced by various factors and developments and by seasonal variations, the results of operations for interim periods are not necessarily indicative of results or trends for the year. Earnings PPL Electric Utilities' earnings available to PPL were $25 million for the three months ended September 30, 2000, compared with $101 million during the same period in 1999. Earnings for the nine months ended September 30, 2000 were $251 million, compared with $270 million during the first nine months of 1999. The following table shows the adjusted earnings for these periods on a comparable basis, after eliminating the estimated impacts of businesses transferred in the corporate realignment and certain nonrecurring items (millions of dollars):
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Actual Earnings $ 25 $ 101 $ 251 $ 270 Eliminate third quarter 1999 earnings of unregulated electricity supply and marketing businesses (73) (73) Eliminate nonrecurring items: . Benefit of securitization transactions (19) (19) . Environmental insurance recoveries (18) (23) ----- ----- ----- ----- Adjusted Earnings $ 7 $ 9 $ 228 $ 178 ===== ===== ===== =====
Adjusted earnings for the nine months ended September 30, 2000 increased by $50 million over the same period in 1999. (These adjusted earnings reflect six months of PPL Electric Utilities' full operations, and three months of the post- realignment businesses: the transmission and distribution of electricity and the supply of electricity as a PLR.) This increase in earnings was primarily due to higher margins on wholesale activities during the first half of 2000 compared with 1999, the end of a one-year 4% rate reduction for delivery customers, higher electric delivery sales, and lower other operating expenses. The operating expense reductions included a gain on the sale of emission allowances, as well as reductions in pension and medical expenses. These earnings improvements were partially offset by higher interest expense due to the issuance of transition bonds to securitize stranded costs. Electric Energy Sales PPL Electric Utilities' electricity sales for 2000 and 1999 were as follows (millions of kWh):
September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Electricity delivered to retail customers by PPL Electric Utilities 8,321 8,221 25,624 25,086 Less: Electricity supplied by others 1,721 2,770 6,341 6,950 ----- ----- ------ ------ Electricity supplied to retail customers by PPL Electric Utilities as PLR 6,600 5,451 19,283 18,136 Electricity supplied to retail customers by PPL EnergyPlus 3,029 6,363 7,096 ----- ----- ------ ------ Total electricity supplied to retail customers 6,600 8,480 25,646 25,232 Wholesale electricity sales 205 7,801 16,928 24,061
Beginning on January 1, 1999, Pennsylvania electric customers were allowed to choose their electricity supplier under the Customer Choice Act. Customers choosing an alternate supplier continue to have their electricity delivered by the utility that serves their territory. As of the July 1, 2000, corporate realignment, PPL EnergyPlus is no longer a part of PPL Electric Utilities, but rather was transferred to an unregulated subsidiary of PPL. Therefore, PPL Electric Utilities supplies electricity to retail customers only as a PLR, but continues to deliver electricity to all retail customers in its service territory. Electricity delivered to retail customers in the three months ended September 30, 2000, increased by 100 million kWh, or 1.2%, from the comparable period in 1999. This increase reflects higher usage by industrial customers. Electricity delivered to retail customers in the nine months ended September 30, 2000, increased by 538 million kWh, or 2.1%, from the comparable period in 1999. This increase was due to higher usage by commercial and industrial customers. Electricity supplied to retail customers decreased by 1,880 million kWh, or 22.2%, when comparing the three months ended September 30, 2000, to the same period in 1999. After eliminating PPL EnergyPlus' retail energy supply that was transferred in the corporate realignment, electricity supplied as a PLR increased by 1,149 million kWh, or 21.1%. Most of the increase was due to fewer commercial and industrial customers selecting a supplier other than PPL Electric Utilities in 2000. Electricity supplied to retail customers increased by 414 million kWh, or 1.6%, when comparing the nine months ended September 30, 2000, to the same period in 1999. After eliminating PPL EnergyPlus' retail energy supply that was transferred in the corporate realignment from the results for the third quarter of 1999, electricity supplied increased by 3,443 million kWh, or 15.5%. The increase was due to increased supply to commercial and industrial customers. Wholesale electricity sales decreased by 7,596 million kWh, in the three months ended September 30, 2000, when compared to the same period in 1999. After eliminating the kWh of PPL EnergyPlus wholesale transactions that were transferred in the corporate realignment, sales were basically unchanged. Wholesale electricity sales decreased by 7,133 million kWh in the nine months ended September 30, 2000, when compared to the same period in 1999. After eliminating the kWh of the wholesale transactions that were transferred in the corporate realignment from the results of the third quarter of 1999, sales increased by 437 million kWh. The increase was primarily the result of increased activity in the first half of 2000 by the Energy Marketing Center in the wholesale market, offset somewhat by the expiration of bulk power contracts. Operating Revenues Electric -------- The increase (decrease) in revenues from electric operations was attributable to the following (millions of dollars): September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- PPL Electric Utilities Electric delivery $ (5) $ 9 PLR electric generation supply 13 (14) PPL EnergyPlus Electric generation supply (116) (35) Other 1 ----- ---- $(108) $(39) ===== ==== As of the July 1, 2000 corporate realignment, PPL EnergyPlus is no longer a part of PPL Electric Utilities; rather, it has been transferred to an unregulated subsidiary of PPL. Subsequent to July 1, PPL Electric Utilities continues to supply electricity to retail customers as a PLR, and delivers electricity to all retail customers in its service territory. After eliminating PPL EnergyPlus' retail energy supply that was transferred in the corporate realignment from the results for the third quarter of 1999, operating revenues from retail electric operations increased by $8 million and $77 million for the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. The adjusted increase of $77 million for the nine months ended September 30, 2000 was primarily due to an increase in PPL EnergyPlus' volumes during the first half of 2000 versus the same period in 1999. This increase was driven by PPL EnergyPlus' marketing efforts in Pennsylvania and surrounding states that have been implemented to secure and retain end-use customers in these deregulated states. Wholesale Energy Marketing and Trading -------------------------------------- The increase (decrease) in revenues from wholesale energy marketing and trading activities was attributable to the following (millions of dollars): September 30, 2000 vs. September 30, 1999 ----------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- PPL Electric Utilities Bilateral Sales $(296) $(159) PJM (50) (36) Cost-based contracts (39) (57) Gas & oil sales (93) (54) Other (12) (14) NUG purchases sold to affiliate 40 40 ----- ----- $(450) $(280) ===== ===== After eliminating the revenues of businesses transferred in the corporate realignment from the results for the third quarter of 1999, wholesale revenues decreased by $12 million for the three months ended September 30, 2000, compared with the same period in 1999. After eliminating the revenues of businesses transferred in the corporate realignment from the results for the third quarter of 1999, wholesale revenues increased by $158 million for the nine months ended September 30, 2000, compared with the same period in 1999. This was primarily due to increased bilateral sales revenues of $137 million during the first half of 2000 compared with the same period in 1999. The change in bilateral sales revenues reflected higher market pricing and energy sales to other counterparties. Electric Fuel Costs For the three and nine months ended September 30, 2000, electric fuel costs decreased by $131 million and $151 million, respectively, compared with the same periods in 1999. After eliminating the expenses of businesses transferred in the corporate realignment from the results for the third quarter of 1999, electric fuel costs decreased by $20 million for the nine months ended September 30, 2000. This decrease was attributed to lower generation because of the Holtwood plant closing in April 1999, the sale of the Sunbury plant in November 1999, plant outages, and reduced operation of marginal units. In addition, lower nuclear fuel expense contributed to the decrease in electric fuel costs. During the first quarter of 1999, there was a charge of $5 million to accrue for the increase in estimated costs of dry cask canisters for the on-site spent fuel storage at the Susquehanna plant. Energy Purchases Energy purchases for retail load and wholesale activities decreased by $158 million during the three months ended September 30, 2000 compared with the same period in 1999. After eliminating the expenses of businesses transferred in the corporate realignment from the results for the third quarter of 1999, energy purchases increased by $24 million during the three months ended September 30, 2000. This increase reflects higher energy purchases from PPL EnergyPlus in the third quarter of 2000 than would have been incurred if realigned in the third quarter of 1999. This was attributed to higher energy sales by PPL Electric Utilities as a PLR. Energy purchases increased by $8 million during the nine months ended September 30, 2000, compared with the same period in 1999. After eliminating the expenses of businesses transferred in the corporate realignment from the results for the third quarter of 1999, energy purchases increased by $190 million during the nine months ended September 30, 2000. During the first half of 2000, energy purchases increased by $166 million over the same period in 1999. This was primarily due to higher purchases to support PPL EnergyPlus' increased unregulated retail electric and gas sales. Also, higher per unit prices for these purchases contributed to the increase in energy purchases, coupled with recognized losses on certain long-term forward transactions. The remainder of the increase during the nine month period, $24 million, represents the estimated increase in PPL Electric Utilities' purchases to support its PLR load in the third quarter of 2000, as noted above. Other Operation Expenses Other operation expenses decreased by $99 million and $149 million for the three and nine months ended September 30, 2000, respectively, when compared with the same periods in 1999. After eliminating the expenses of businesses transferred in the corporate realignment from the results for the third quarter of 1999, other operation expenses decreased by $32 million and $82 million for the three and nine months ended September 30, 2000, respectively. The decrease for the three months ended September 30, 2000, was primarily due to an environmental insurance recovery. The decrease for the nine months ended September 30, 2000, was due to the foregoing reason, as well as gains on the sale of emission allowances, and decreases in wages, pension plan costs, medical expenses, load dispatching activities for system control and computer software development costs. Maintenance Expenses Maintenance expenses decreased by $29 million and $18 million for the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. After eliminating the expenses of businesses transferred in the corporate realignment from the results for the third quarter of 1999, maintenance expenses decreased by $10 million for the three month period and increased by $1 million for the nine month period ended September 30, 2000, when compared to the same periods in 1999. The decrease for the three month period ended September 30, 2000, was primarily due to lower wages and transmission line maintenance expenses. Depreciation and Amortization Depreciation and amortization decreased by $33 million and $34 million for the three and nine months ended September 30, 2000, respectively, when compared with the same periods in 1999. However, after eliminating the expenses of businesses transferred in the corporate realignment from the results of the third quarter of 1999, depreciation on assets used in the electric delivery business was essentially unchanged from the prior year. Financing Costs Interest expense increased by $29 million for the nine months ended September 30, 2000, compared with the same period in 1999. This increase was primarily due to the issuance of transition bonds in August 1999, partially offset by the retirement of first mortgage bonds in August 1999, and in April and June 2000. Dividends on preferred stock decreased by $11 million during the nine months ended September 30, 2000, compared with the same period in 1999. This decrease was the result of PPL Electric Utilities acquiring $380 million of its preferred stock that had been held by PPL. PPL Electric Utilities acquired this preferred stock in August 1999, using a portion of the proceeds from securitization. Income Taxes Income taxes increased by $41 million and $67 million for the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. After eliminating the expenses of businesses transferred in the corporate realignment from the results of the third quarter of 1999, income taxes increased by $84 million and $110 million for the three month and nine month periods, respectively. These changes were primarily due to a release of deferred taxes no longer required due to securitization in the third quarter of 1999, and by higher adjusted pre-tax book income during the nine months ended September 30, 2000. Financial Condition ------------------- Energy Marketing and Trading Activities In connection with the corporate realignment, effective July 1, 2000, PPL Electric Utilities' unregulated energy marketing and trading activities were transferred to PPL EnergyPlus. Market Risk Sensitive Instruments Commodity Price Risk -------------------- In connection with the corporate realignment, effective July 1, 2000, the commodity positions of PPL Electric Utilities were also transferred to PPL EnergyPlus, which was moved to an unregulated subsidiary of PPL. Interest Rate Risk ------------------ PPL Electric Utilities has issued debt to finance its operations, which increases interest rate risk. At September 30, 2000, PPL Electric Utilities' potential annual exposure to increased interest expense due to a 10% increase in interest rates was estimated at $3 million. PPL Electric Utilities is also exposed to changes in the fair value of its debt portfolio. At September 30, 2000, PPL Electric Utilities estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was about $11 million. Market events that are inconsistent with historical trends could cause actual results to differ from estimated levels. Nuclear Decommissioning Fund - Securities Price Risk ---------------------------------------------------- In connection with the corporate realignment, effective July 1, 2000, the nuclear decommissioning fund was transferred to, and will be maintained by, PPL Susquehanna. Financing Activities Refer to Note 4 to the Financial Statements for information regarding Financing Activities. Financing and Liquidity Cash and cash equivalents decreased by an additional $164 million during the nine months ended September 30, 2000, compared with the same period in 1999. The reasons for this change were: . A $33 million increase in cash provided by operating activities, primarily due to changes in current assets and current liabilities. . A $41 million decrease in cash used in investing activities, primarily due to an increase in proceeds from the sales of nuclear fuel to the trust and an increase in loan repayments from affiliated companies. . A $238 million increase in cash used in financing activities. This increase was due to greater net retirements of securities in the nine months ended September 30, 2000 compared with the same period in 1999, the termination of the nuclear fuel lease, and cash of affiliates divested in the corporate realignment. Financial Indicators Earnings for the twelve months ended September 30, 2000 and 1999 were impacted by nonrecurring items and restructuring impacts, which are listed in the "Earnings" discussion in the Results of Operations of this Form 10-Q and the Form 10-K for the year ended December 31, 1999. The following financial indicators for PPL Electric Utilities reflect the elimination of these impacts from earnings, and provide an additional measure of the underlying earnings performance of PPL Electric Utilities and its subsidiaries. For purposes of comparability, the results of businesses transferred in the corporate realignment were eliminated for the third quarter of 1999.
12 Months Ended September 30, ----------------------------- 2000 1999 ---- ---- Earnings available to PPL (adjusted, in millions) $ 313 $ 240 Ratio of pre-tax income to interest charges 2.98% 3.06%
Environmental Matters See Note 5 to Financial Statements for a discussion of environmental matters. Increasing Competition The electric utility industry has experienced, and will continue to experience, a significant increase in the level of competition in the energy supply market at both the state and federal level. PPL Electric Utilities' PLR supply business will be affected by customers who select alternate suppliers. Refer to PPL Electric Utilities' 1999 Form 10-K for a discussion of state and federal activities in this regard. Corporate Realignment On July 1, 2000, PPL and PPL Electric Utilities completed a corporate realignment in order to effectively separate PPL Electric Utilities' regulated transmission and distribution businesses from its recently deregulated generation businesses and better position the companies and their affiliates in the new competitive market-place. The corporate realignment included the following key features: . PPL Electric Utilities transferred its generating and certain other related assets, along with associated liabilities, to new unregulated generating subsidiaries of PPL Generation. In connection with the transfer, PPL Energy Funding, the parent company of PPL Generation, assumed $670 million aggregate principal amount of PPL Electric Utilities' debt issued to affiliated companies. . PPL Electric Utilities also transferred assets constituting its wholesale energy marketing business, along with associated liabilities, to its wholly-owned subsidiary, PPL EnergyPlus, and transferred its interest in PPL EnergyPlus to PPL Energy Funding. . PPL Electric Utilities distributed, as a distribution on common stock in a "tax-free spin-off," all of the outstanding shares of stock of PPL Energy Funding to PPL, which resulted in PPL Energy Funding becoming a wholly-owned subsidiary of PPL. . PPL Electric Utilities entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet PPL Electric Utilities' obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. As a result of the corporate realignment, PPL Electric Utilities' principal businesses are the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania and the supply of electricity to retail customers as a PLR. Other subsidiaries of PPL and PPL Electric Utilities are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC and the NRC. PPL Electric Utilities Corporation - ---------------------------------- Unaudited Pro Forma Condensed Consolidated Financial Information - ---------------------------------------------------------------- The pro forma information that follows is presented to give effect to the corporate realignment on the balance sheet and income statement of PPL Electric Utilities. The pro forma results are based on certain assumptions and are not necessarily indicative of the results of operations which would actually have occurred if the transactions had occurred in such periods, or which may exist or occur in the future. The corporate realignment is described above. From the perspective of PPL Electric Utilities, the realignment involved the disposition and transfer of assets and liabilities associated with the generating and marketing portions of its existing business, as well as certain other corporate assets and liabilities. These assets and liabilities were transferred to unregulated subsidiaries of PPL, the parent of PPL Electric Utilities. Specifically, PPL Electric Utilities transferred generating, marketing and certain related assets (including its investments in PPL EnergyPlus, PPL Interstate Energy Company, Realty Company of Pennsylvania, and Pennsylvania Mines Corporation) and liabilities to its wholly-owned subsidiary, PPL Energy Funding. PPL Electric Utilities then distributed its investment in PPL Energy Funding to PPL in a "tax-free spin-off." PPL Electric Utilities also distributed other corporate assets (net of associated liabilities) to PPL, which PPL then contributed to PPL Services, a new subsidiary of PPL. The distribution reflects the transfer of these assets and liabilities at book value, and was recorded effective July 1, 2000. The pro forma balance sheet gives effect to the distribution of PPL Electric Utilities' investment in PPL Energy Funding as if the asset and liability transfer and subsequent distribution were made on December 31, 1999. The adjustments are applied to the balance sheet at December 31, 1999, as set forth in Item 1. The as-adjusted balances at December 31, 1999 reflect the pro forma balances for the remaining business of PPL Electric Utilities, principally the transmission and distribution of electricity to retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity as a PLR. The as-adjusted balance sheet also reflects the consolidated accounts of PPL Transition Bond Company, PPL Capital Trust, PPL Capital Trust II, and CEP Commerce, LLC. Pro forma adjustments are also provided to the income statement for the three and nine months ended September 30, 2000 and 1999, as set forth in Item 1. The pro forma adjustments assume that the transfer was consummated at the beginning of the income statement period. The as-adjusted income statements are intended to reflect the pro forma consolidated operations of the remaining portions of PPL Electric Utilities. PPL Electric Utilities Corporation and Subsidiaries - --------------------------------------------------- Pro Forma Condensed Consolidated Balance Sheet - ---------------------------------------------- December 31, 1999 (Unaudited) (Millions of Dollars)
Pro Forma As Reported Adjustments As Adjusted ----------- ----------- ----------- Assets Current Assets $ 967 $ 119 a) $1,086 Investments 776 (626) b) 150 Property, Plant and Equipment 4,345 (1,953) c) 2,392 Regulatory Assets and Other Noncurrent Assets 3,004 (13) d) 2,991 ------- ------- ------ $ 9,092 $(2,473) $6,619 ======= ======= ====== Liabilities and Equity Current Liabilities $ 1,288 $ (351) e) $ 937 Long-term Debt 3,153 3,153 Deferred Credits and Other Noncurrent Liabilities 3,008 (2,027) f) 981 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company debentures 250 250 Preferred Stock 97 97 Shareowner's Common Equity: Earnings Reinvested 419 (101) g) 318 Other Common Equity 877 6 f) 883 ------- ------- ------ $ 9,092 $(2,473) $6,619 ======= ======= ======
See Notes to Unaudited Pro Forma Consolidated Financial Information. PPL Electric Utilities Corporation and Subsidiaries - --------------------------------------------------- 2000 Pro Forma Condensed Consolidated Statement of Income - --------------------------------------------------------- (Unaudited) (Millions of Dollars)
Three Months Ended Nine Months Ended September 30, 2000 September 30, 2000 -------------------------------------- -------------------------------------- As Pro Forma As As Pro Forma As Reported Adjustments Adjusted Reported Adjustments Adjusted -------- ----------- -------- -------- ----------- -------- Operating Revenues a) $ 570 $ f) $ 570 $ 2,703 $ (957) $ 1,746 Operating Expenses b) 470 470 2,118 (724) 1,394 -------- ----------- -------- -------- ----------- -------- Operating Income 100 100 585 (233) 352 -------- ----------- -------- -------- ----------- -------- Other Income c) 4 4 27 (15) 12 -------- ----------- -------- -------- ----------- -------- Income Before Interest and Income Taxes 104 104 612 (248) 364 Interest Expense d) 59 59 184 10 194 -------- ----------- -------- -------- ----------- -------- Income Before Income Taxes 45 45 428 (258) 170 Income Taxes e) 14 14 158 (96) 62 -------- ----------- -------- -------- ----------- -------- Income Before Extraordinary Items and Dividends on Preferred Stock 31 31 270 (162) 108 Extraordinary Item (net of income taxes) -------- ----------- -------- -------- ----------- -------- Net Income Before Dividends on Preferred Stock 31 31 270 (162) 108 Dividends on Preferred Stock 6 6 19 19 -------- ----------- -------- -------- ----------- -------- Earnings Available to PPL Corporation $ 25 $ $ 25 $ 251 $ (162) $ 89 ======== =========== ======== ======== =========== ========
See Notes to Unaudited Pro Forma Consolidated Financial Information. PPL Electric Utilities Corporation and Subsidiaries - --------------------------------------------------- 1999 Pro Forma Consolidated Statement of Income - ----------------------------------------------- (Unaudited) (Millions of Dollars)
Three Months Ended Nine Months Ended September 30, 1999 September 30, 1999 -------------------------------------- -------------------------------------- As As Reported- Pro Forma As Reported- Pro Forma As Restated Adjustments Adjusted Restated Adjustments Adjusted -------- ----------- -------- -------- ----------- -------- Operating Revenues a) $ 1,128 $ (556) $ 572 $ 3,019 $ (1,269) $ 1,750 Operating Expenses b) 937 (446) 491 2,443 (1,085) 1,358 -------- ----------- -------- -------- ----------- -------- Operating Income 191 (110) 81 576 (184) 392 -------- ----------- -------- -------- ----------- -------- Other Income c) 7 (4) 3 29 (18) 11 -------- ----------- -------- -------- ----------- -------- Income Before Interest and Income Taxes 198 (114) 84 605 (202) 403 Interest Expense d) 59 2 61 155 1 156 -------- ----------- -------- -------- ----------- -------- Income Before Income Taxes 139 (116) 23 450 (203) 247 Income Taxes e) (27) (43) (70) 91 (77) 14 -------- ----------- -------- -------- ----------- -------- Income Before Extraordinary Items and Dividends on Preferred Stock 166 (73) 93 359 (126) 233 Extraordinary Item (net of income taxes) (59) (59) (59) (59) -------- ----------- -------- -------- ----------- -------- Net Income Before Dividends on Preferred Stock 107 (73) 34 300 (126) 174 Dividends on Preferred Stock 6 6 30 30 -------- ----------- -------- -------- ----------- -------- Earnings Available to PPL Corporation $ 101 $ (73) $ 28 $ 270 $ (126) $ 144 ======== =========== ======== ======== =========== ========
See Notes to Unaudited Pro Forma Consolidated Financial Information. PPL Electric Utilities Corporation and Subsidiaries - --------------------------------------------------- Notes to Unaudited Pro Forma Consolidated Financial Information - --------------------------------------------------------------- Adjustments to the Balance Sheet -------------------------------- a) Adjustment reflects the transfer of current assets as part of the distribution, including fuel, spare parts and other inventories used in the generation of electricity, as well as the asset positions of energy trading activities. The adjustment to cash and cash equivalents also includes an assumed intercompany borrowing by PPL Electric Utilities of $350 million prior to realignment. See Note g), below. b) Adjustment reflects the transfer of: . notes and other receivables on the books of certain subsidiaries of PPL Energy Funding; . two nuclear decommissioning trust funds, which fund the future decommissioning of the Susquehanna generating station; . equity investment in Safe Harbor Water Power Corporation; and . other miscellaneous investments. c) Adjustment reflects the transfer of steam, hydro and combustion-turbine generating plant, net of accumulated reserves for depreciation. Also reflected in the adjustment are generation-related transformers, leads, and circuit breakers; the balances of generation-related construction projects in progress; nuclear fuel; and oil/gas pipeline property. d) Adjustment reflects the transfer of miscellaneous deferred debits for benefits and payroll. e) Adjustment reflects the transfer of: . notes payable to affiliated companies. At December 31, 1999, PPL Electric Utilities had a $300 million note payable to CEP Reserves, Inc., a wholly-owned subsidiary of PPL Energy Funding. This debt was transferred to PPL Energy Funding as part of the realignment. Also, it was assumed that PPL Electric Utilities borrowed $350 million from a PPL affiliate prior to realignment, and that this debt was transferred to PPL Energy Funding as part of the realignment. See Note g), below, for additional information; . a loss accrual to PPL EnergyPlus. PPL Electric Utilities will continue to purchase power from non-utility generators under pre-existing contracts, at prices currently above market. PPL Utilities will then sell this power to PPL EnergyPlus at the same prices. PPL EnergyPlus will then amortize the loss accrual as an offset to the purchased power; . current liabilities, including accounts payable for fuel, spare parts and other inventories used in the generation of electricity; accrued taxes and interest associated with unregulated activities; and liability positions of energy trading activities; and . various accrued liabilities including payroll and benefit-related liabilities, air pollution control emission fees, and nuclear decommissioning fees. f) Adjustment reflects the transfer of: . deferred income taxes associated with the transferred generating plant and related assets; and . deferred credits for nuclear decommissioning and certain retirement plan liabilities to PPL Services. g) Adjustment reflects the net dividend to PPL of PPL Electric Utilities' investment in PPL Energy Funding, as well as the transfer of certain assets and liabilities to PPL Services. For purposes of this pro forma transfer at December 31, 1999, it was assumed that $350 million of intercompany borrowing was made by PPL Electric Utilities prior to this realignment, and that this debt was transferred to PPL Energy Funding. This then resulted in an as- adjusted retained earnings balances at December 31, 1999 that was approximately the same proportionate share of total capitalization as that which actually resulted upon the July 1, 2000 transfer. PPL Electric Utilities Corporation and Subsidiaries - --------------------------------------------------- Notes to Unaudited Pro Forma Consolidated Financial Information - --------------------------------------------------------------- Adjustments to the Statement of Income -------------------------------------- a) Adjustment reflects the elimination of operating revenues of: . unregulated retail electricity and gas sales by PPL EnergyPlus. Remaining retail revenues are from the transmission and distribution of electricity in PPL Electric Utilities' franchised territory in Pennsylvania, as well as from providing electricity as a PLR for customers who have not selected an alternate supplier under the Pennsylvania Customer Choice Act; . unregulated wholesale marketing business transferred to PPL EnergyPlus. Remaining wholesale revenues consist of sales to municipalities, and intercompany sales to PPL EnergyPlus of power purchased from non-utility generators; and . energy-related businesses of PPL Interstate Energy Company. b) Adjustment reflects the elimination of operating expenses of: . fuel to operate the generating stations. After realignment, fuel expense will be incurred by the generating subsidiaries of PPL Generation; . external purchases of energy to meet retail and wholesale load, as well as for energy trading purposes. After realignment, these expenses will be incurred by PPL EnergyPlus. This reduction is partially offset by additional expenses for the purchase of electricity from PPL EnergyPlus to meet PPL Electric Utilities' obligation as a PLR. This intercompany purchase by PPL Electric Utilities is under a power sales agreement valued at the applicable shopping credits, plus nuclear decommissioning costs, minus state taxes; . other operation and maintenance expenses associated with generation and marketing functions. These amounts include the direct expenses incurred by these functions, and estimated direct corporate support and allocations of corporate overheads; . depreciation expense associated with generation facilities; . PPL EnergyPlus' gross receipts tax related to its retail sales and PPL Energy Funding's share of other taxes; and . expenses of energy-related businesses of PPL Interstate Energy Company and PPL EnergyPlus. c) Adjustment reflects the elimination of other non-operating income of businesses transferred out of PPL Electric Utilities. d) Adjustment reflects the additional interest expense associated with debt to affiliates transferred in the realignment. e) Adjustment reflects the elimination of income taxes associated with the generation and marketing functions. f) No adjustments were required for the three months ended September 30, 2000 results of operations. These results were subsequent to the corporate realignment, and therefore include solely the results of operations of PPL Electric Utilities' remaining businesses: the transmission and distribution of electricity to retail customers in its franchised territory and the supply of electricity as a PLR. Management's Discussion and Analysis of Results of Operations - ------------------------------------------------------------- Pro Forma Consolidated Statements of Income - ------------------------------------------- The following discussion explains significant changes in principal items on the Pro Forma Consolidated Statements of Income. This discussion uses the "As Adjusted" results for the three and nine months ended September 30, 2000 and 1999. The "As Adjusted" results are intended to reflect the pro forma consolidated operations of PPL Electric Utilities' remaining businesses, principally the transmission and distribution of electricity to retail customers in its franchised territory, and the supply of electricity as a PLR. The pro forma results are based on assumptions and are not necessarily indicative of the results of operations which would actually have occurred in such periods, or which may occur in the future. Operating Expenses ------------------ Pro forma operating expenses decreased by $21 million during the three months ended September 30, 2000, compared with the same period in 1999. This was primarily due to environmental insurance recoveries recorded in the third quarter of 2000, partially offset by higher energy purchases from PPL EnergyPlus, to support PPL Electric Utilities' higher sales as a PLR. Pro forma operating expenses increased by $36 million during the nine months ended September 30, 2000, compared with the same period in 1999. This increase was primarily due to a $51 million increase in energy purchases that would have been made from PPL EnergyPlus, to support PPL Electric Utilities' higher sales as a PLR. For the nine months ended September 30, 2000, PLR sales increased by 1,147 million kWh, or 6.3%, over the same period in 1999. This reflects an increase in sales to commercial and industrial customers, and a decrease in sales lost to alternate suppliers. Pro forma operating expenses also increased by $24 million during the nine months ended September 30, 2000 due to higher amortization of recoverable transition costs. Higher regulated electric deliveries of 2.1% contributed to the increase in amortization during this period. These increases in pro forma operating expenses were partially offset by a $49 million decrease in other operation expenses, largely due to environmental insurance recoveries. Interest Expense ---------------- Pro forma interest expense increased by $38 million during the nine months ended September 30, 2000 compared with the same period in 1999. This was the net effect of additional interest expense due to the issuance of transition bonds, and lower interest expense due to retirement of first mortgage bonds. Income Tax Expense ------------------ Pro forma income tax expense increased by $84 million for the three months ended September 30, 2000, compared with the same period in 1999. This change was due to a credit to income tax expense recorded in the third quarter of 1999, for deferred income taxes no longer required due to securitization. Pro forma income tax expense increased by $48 million during the nine months ended September 30, 2000, compared with the same period in 1999. This increase was due to the credit to tax expense noted above, partially offset by reduced income taxes associated with lower pre tax book income during the 2000 period. Dividends on Preferred Stock ---------------------------- Pro forma dividends on preferred stock decreased by $11 million during the nine months ended September 30, 2000, compared with the same period in 1999. This decrease was the result of PPL Electric Utilities acquiring $380 million of its preferred stock that had been held by PPL. PPL Electric Utilities acquired this preferred stock in August 1999, using a portion of the proceeds from securitization. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Reference is made to "Market Risk Sensitive Instruments" in Review of Financial Condition and Results of Operations. PPL CORPORATION AND ------------------- PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES --------------------------------------------------- PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Reference is made to "Legal Proceedings" in PPL's and PPL Electric Utilities' Annual Report to the SEC on Form 10-K for the year ended December 31, 1999, and to the PPL and PPL Electric Utilities Notes to Consolidated Financial Statements for additional information regarding various pending administrative and judicial proceedings involving regulatory, environmental and other matters. Pursuant to changes in the Pennsylvania Public Utility Realty Tax Act ("PURTA") enacted in 1999, PPL Electric Utilities has filed a number of tax assessment appeals in various counties throughout its service territory. These appeals challenge existing local tax assessments, which now furnish the basis for payment of the PURTA tax on PPL Electric Utilities' properties. Also, as of January 1, 2000, generation facilities are no longer taxed under PURTA, and these local assessments will be used directly to determine local real estate tax liability for PPL Electric Utilities' power plants. PPL Electric Utilities has filed retroactive appeals for tax years 1998 and 1999, as permitted by the new law, as well as prospective appeals for 2000, as permitted under normal assessment procedures. Hearings on the appeals were held by the boards of assessment appeals in each county, and decisions have now been rendered by most counties. To the extent the appeals were denied or PPL Electric Utilities was not otherwise satisfied with the results, PPL Electric Utilities has filed further appeals from the board decisions with the appropriate county Courts of Common Pleas. Of all the pending proceedings, the most significant appeal concerns the assessed value of the Susquehanna nuclear station. The current county assessment of the Susquehanna station indicates a market value of $3.9 billion. However, based on Pennsylvania assessment law, PPL Electric Utilities contends that machinery and equipment used at the Susquehanna station are not part of the real estate subject to taxation. An independent appraiser for PPL Electric Utilities has estimated the market value of the taxable portion of the plant to be approximately $20 million. PPL Electric Utilities' appeal of the Susquehanna station assessment is currently pending in the Luzerne County Court of Common Pleas, and a trial date has been set for December 2000. As a result of these proceedings and potential appeals, a final determination of market value and the associated tax liability may not occur for several years. Based on the county market valuation of $3.9 billion, the Berwick Area School District (where the Susquehanna station is located) has issued a tax bill to PPL Electric Utilities for just under $25 million for the first six months of 2000 and another tax bill for about $47 million for its fiscal year 2000-2001. PPL Electric Utilities has also received a joint tax bill from the county and the municipality for another $22 million, which covers tax year 2000. On the basis of PPL Electric Utilities' appraisal, the School District would be entitled to receive about $250,000 in local taxes annually, and the county and the township combined would receive about $123,000 annually. In July 2000, the School District submitted its own appraisal, which indicates a market value of the taxable portion of the plant of about $372 million. Based on this appraisal, the School District would be entitled to receive about $4.5 million dollars annually in local taxes and the county and township combined would receive about $2.2 million dollars annually. In the other assessment appeals pending in county courts, the local authorities have assessed PPL Electric Utilities' generating plants at an aggregate amount of about $330 million for tax year 2000, for a total tax liability of about $6.8 million. PPL Electric Utilities has estimated the aggregate market value of these plants at about $26 million for tax year 2000, for a total tax liability of about $454,000. As at the Susquehanna station, the School Districts involved in these proceedings have issued interim tax bills at levels which are disputed by PPL Electric Utilities. Final determinations of market value and associated tax liability, in these proceedings may not occur for several years. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits 10 - 364-Day Revolving Credit Facility 12a and 12b - Computation of Ratio of Earnings to Fixed Charges 27 - Financial Data Schedule (b) Reports on Form 8-K PPL and PPL Electric Utilities Report dated July 1, 2000 -------------------------------------------------------- Item 5. Other Events Information regarding PPL's and PPL Utilities' completion of a corporate realignment. PPL and PPL Electric Utilities Report dated July 1, 2000 -------------------------------------------------------- Item 2. Disposition of Assets (PPL Electric Utilities) Item 5. Other Events (PPL) Information regarding PPL's and PPL Utilities' completion of a corporate realignment. Item 7. Financial Statements and Exhibits Corporate Organization Before and After Realignment. Unaudited Pro Forma Consolidated Financial Information of PPL Electric Utilities. PPL Report dated July 26, 2000 ------------------------------ Item 5. Other Events Press release regarding PPL's earnings for the second quarter of 2000 and its revised earnings forecasts for 2000 and 2001. Item 7. Financial Statements and Exhibits Press release dated July 26, 2000, regarding PPL's earnings for the second quarter of 2000 and forecasted earnings. PPL Report dated August 1, 2000 ------------------------------- Item 5. Other Event Press release regarding the financial impact on PPL of the potential acquisition of Hyder plc. Item 7. Financial Statements and Exhibits Press release regarding the financial impact on PPL of the potential acquisition of Hyder plc. PPL Report dated August 18, 2000 -------------------------------- Item 5. Other Events Press release regarding WPDL's announcement of a further increased offer of 365 pence per share for the remaining shares of Hyder plc. Press release regarding PPL's announcement of revised earnings forecasts for 2000 and 2001. PPL Report dated September 29, 2000 ----------------------------------- Item 5. Other Events Information regarding the acquisition of Hyder plc. Item 7. Financial Statements and Exhibits Audited Consolidated Financial Information of Hyder plc. Unaudited Pro Forma Consolidated Financial Information of PPL. Consent of PricewaterhouseCoopers, LLP. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries. PPL Corporation --------------- (Registrant) PPL Electric Utilities Corporation ---------------------------------- (Registrant) Date: November 13, 2000 /s/ John R. Biggar ------------------------------------- John R. Biggar Senior Vice President and Chief Financial Officer (PPL Corporation) (principal financial officer) /s/ Joseph J. McCabe ------------------------------------- Joseph J. McCabe Vice President and Controller (PPL Electric Utilities Corporation) (principal accounting officer) EX-10 2 0002.txt AMENDED & RESTATED 364-DAY CREDIT AGREEMENT ================================================================================ $750,000,000 AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT Among PPL ELECTRIC UTILITIES CORPORATION and PPL CAPITAL FUNDING, INC., as Borrowers PPL CORPORATION, as Guarantor of the obligations of PPL Capital Funding, Inc. FIRST UNION NATIONAL BANK, as Administrative Agent THE CHASE MANHATTAN BANK, as Syndication Agent CITIBANK, N.A., as Documentation Agent and THE BANKS NAMED HEREIN, Dated as of June 28, 2000 ----------------------------- FIRST UNION SECURITIES, INC., as Lead Arranger and Book Manager ================================================================================ TABLE OF CONTENTS ----------------- SECTION 1. Amounts and Terms of Loans................................................ 1 1.1 Commitments................................................................. 1 1.2 Notices of Borrowing........................................................ 2 1.3 Disbursement of Funds....................................................... 2 1.4 Repayment of Loans; Evidence of Debt........................................ 3 1.5 Special Payment Provisions.................................................. 3 1.6 Fees........................................................................ 4 1.7 Reductions in Total Commitments............................................. 4 1.8 Compensation................................................................ 5 SECTION 1A. Letters of Credit........................................................ 5 SECTION 2. Interest.................................................................. 8 2.1 Rates of Interest........................................................... 8 2.2 Determination of Rate of Borrowing.......................................... 9 2.3 Interest Payment Dates...................................................... 9 2.4 Conversions; Interest Periods............................................... 9 2.5 Increased Costs, Illegality, Etc............................................ 10 2.6 Extension of Expiry Date.................................................... 13 SECTION 3. Payments.................................................................. 14 3.1 Payments on Non-Business Days............................................... 14 3.2 Voluntary Prepayments....................................................... 14 3.3 Method and Place of Payment, Etc............................................ 14 3.4 Net Payments................................................................ 15 SECTION 4. Conditions Precedent...................................................... 15 4.1 Conditions to Effectiveness................................................. 15 4.2A Conditions to Each Loan to PPL and Each Issuance of a Letter of Credit for the account of PPL........................................................ 16 4.2B Conditions to Each Loan to Finance Co. and Each Issuance of a Letter of Credit for the account of Finance Co...................................... 17 SECTION 5.A Covenants of PPL......................................................... 18 5.1A Financial Statements....................................................... 18 5.2A Mergers.................................................................... 19 5.3A Ratings.................................................................... 19 5.4A Consolidated Indebtedness to Consolidated Capitalization................... 19 SECTION 5.B Covenants of Finance Co. and Parent...................................... 19 5.1B Financial Statements....................................................... 19
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Page 5.2B Mergers....................................................................... 20 5.3B Ratings....................................................................... 20 5.4B Liens 20 5.5B Consolidated Indebtedness to Consolidated Capitalization...................... 20 SECTION 6.A Events of Default with Respect to PPL....................................... 21 6.1A Representations, Etc.......................................................... 21 6.2A Principal and Interest........................................................ 21 6.3A Defaults by PPL Under Other Agreements........................................ 21 6.4A Judgments..................................................................... 21 6.5A Bankruptcy, Etc............................................................... 21 6.6A Other Covenants............................................................... 22 SECTION 6.B Events of Default with Respect to Finance Co................................ 22 6.1B Representations, Etc.......................................................... 22 6.2B Principal and Interest........................................................ 22 6.3B Defaults by Finance Co. or Parent Under Other Agreements...................... 22 6.4B Judgments..................................................................... 22 6.5B Bankruptcy, Etc............................................................... 22 6.6B Other Covenants............................................................... 23 6.7B Events of Default with Respect to PPL......................................... 23 SECTION 7.A Representations and Warranties of PPL....................................... 24 7.1A Corporate Status.............................................................. 24 7.2A Authority; No Conflict........................................................ 24 7.3A Legality, Etc................................................................. 24 7.4A Financial Statements.......................................................... 24 7.5A Litigation.................................................................... 25 7.6A No Violation.................................................................. 25 7.7A ERISA......................................................................... 25 7.8A Consents...................................................................... 25 7.9A Intentionally Omitted......................................................... 25 7.10A Investment Company Act....................................................... 25 7.11A Public Utility Holding Company Act........................................... 25 7.12A Tax Returns.................................................................. 25 7.13A Compliance with Laws......................................................... 25 SECTION 7.B Representations and Warranties of Finance Co. and Parent.................... 26 7.1B Corporate Status.............................................................. 26 7.2B Authority; No Conflict........................................................ 26 7.3B Legality, Etc................................................................. 26 7.4B Financial Statements.......................................................... 26 7.5B Litigation.................................................................... 26
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Page 7.6B No Violation.................................................................... 27 7.7B ERISA........................................................................... 27 7.8B Consents........................................................................ 27 7.9B Investment Company Act.......................................................... 27 7.10B Public Utility Holding Company Act............................................. 27 7.11B Tax Returns.................................................................... 27 7.12B Compliance with Laws........................................................... 27 SECTION 8. Agent.......................................................................... 27 8.1 Appointment...................................................................... 27 8.2 Nature of Duties................................................................. 28 8.3 Rights, Exculpation, Etc......................................................... 28 8.4 Reliance......................................................................... 29 8.5 Indemnification.................................................................. 29 8.6 The Agent, Individually.......................................................... 29 8.7 Resignation by the Agent......................................................... 29 SECTION 9. Parent Guarantee............................................................... 30 SECTION 10. Miscellaneous................................................................. 31 10.1 Definitions..................................................................... 31 10.2 Accounting Principles........................................................... 40 10.3 Exercise of Rights.............................................................. 41 10.4 Amendment and Waiver............................................................ 41 10.5 Expenses; Indemnification....................................................... 41 10.6 Successors and Assigns.......................................................... 42 10.7 Notices, Requests, Demands...................................................... 44 10.8 Survival of Representations and Warranties...................................... 44 10.9 Governing Law................................................................... 44 10.10 Counterparts................................................................... 44 10.11 Terms Generally................................................................ 45 10.12 Effectiveness.................................................................. 45 10.13 Transfer of Office............................................................. 45 10.14 Proration of Payments.......................................................... 45 10.15 Jurisdiction; Consent to Service of Process.................................... 45 10.16 WAIVER OF JURY TRIAL........................................................... 46 10.17 Headings Descriptive........................................................... 46 10.18 Waiver of Notice............................................................... 46
iv Page Bank Address Schedule SCHEDULE I - Commitments EXHIBIT A - Form of Opinion of Senior Counsel of PPL, Finance Co. and Parent EXHIBIT B - Form of Opinion of Thelen Reid & Priest LLP EXHIBIT C - Form of Extension Letter EXHIBIT D1- Form of PPL Compliance Certificate EXHIBIT D2- Form of Parent Compliance Certificate
AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT, dated as of June 28, 2000, among PPL ELECTRIC UTILITIES CORPORATION, a Pennsylvania corporation ("PPL"), and PPL CAPITAL FUNDING, INC., a Delaware corporation ("Finance Co."), as Borrowers; PPL CORPORATION, a Pennsylvania corporation ("Parent"), as guarantor of the obligations of Finance Co. hereunder; the banks listed on Schedule I hereto (each a "Bank" and collectively the "Banks"); FIRST UNION NATIONAL BANK, as fronting bank (in such capacity, the "Fronting Bank") and as administrative agent for the Banks to the extent and in the manner provided in (S) 8 below (in such capacity, the "Agent"); THE CHASE MANHATTAN BANK, as syndication agent (in such capacity, the "Syndication Agent"); and CITIBANK, N.A., as documentation agent (in such capacity, the "Documentation Agent") (all capitalized terms used herein shall have the meanings specified therefor in (S) 10.1 unless otherwise defined herein). On July 1, 1999, the Borrowers, the Agent, the Fronting Bank, the Syndication Agent, the Documentation Agent and the Banks entered into a 364-Day Credit Agreement (the "Existing Credit Agreement") pursuant to which the banks thereunder agreed to extend credit to the Borrowers on a revolving credit basis in principal amount not in excess of $750,000,000 at any time outstanding. The parties hereto desire to amend the Existing Credit Agreement and to restate it in its entirety giving effect to such amendment. Therefore, the parties hereto agree that the Existing Credit Agreement shall be amended and restated to read in its entirety as follows: W I T N E S S E T H: - - - - - - - - - - WHEREAS, subject to and upon the terms and conditions set forth herein, the Banks are willing to make available to PPL and Finance Co. the credit facility herein provided for working capital and other general corporate purposes of the Borrowers, including investments in, or loans to, affiliates of the Borrowers; NOW, THEREFORE, it is agreed: SECTION 1. Amounts and Terms of Loans. -------------------------- 1.1 Commitments. Subject to and upon the terms and conditions herein ------------ set forth, each Bank severally and not jointly agrees, at any time and from time to time prior to the Expiry Date, as such date may be extended pursuant to (S) 2.6, to make a loan or loans (each a "Loan" and collectively for all Banks, the "Loans") to PPL or Finance Co., as requested by such Borrower, which Loans (i) shall at the option of PPL or Finance Co., as applicable, be initially maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans made by all the Banks at any one Borrowing to a Borrower hereunder must be either all Base Rate Loans or all Eurodollar Loans, (ii) may be repaid and borrowed in accordance with the provisions hereof and (iii) shall not exceed in aggregate principal amount at any time outstanding the difference between such Bank's Commitment and the L/C Exposure of such Bank at such time. 1.2 Notices of Borrowing. Whenever a Borrower desires to make a --------------------- Borrowing hereunder, it shall give the Agent at the Payment Office (i) no later than 12:00 Noon (New York time) at least three Business Days' prior written notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be made hereunder and (ii) no later than 11:30 A.M. (New York time) on the date of such Borrowing written notice or telephonic notice (confirmed in writing) of each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of Borrowing") shall state that the Borrowing is being made hereunder and shall specify the aggregate principal amount the applicable Borrower desires to borrow hereunder, the date of Borrowing (which shall be a Business Day), the Type of Loans to be made pursuant to such Borrowing and the Interest Period to be applicable thereto. The Agent shall promptly give each Bank telephonic notice (confirmed in writing) of the proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by the Notice of Borrowing. Each Borrowing shall be in an integral multiple of $1,000,000 and not less than $10,000,000 and shall be made from each Bank in the proportion which its respective Commitment bears to the Total Commitment except as otherwise specifically provided in (S) 2.5. The failure of any Bank to make any Loan required hereby shall not release any other Bank from its obligation to make Loans as provided herein. 1.3 Disbursement of Funds. (a) No later than 12:00 Noon (New York ---------------------- time) (or, in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the date specified in each Notice of Borrowing each Bank will make available the amount of its pro rata portion of the Loans requested to be made on such date in --- ---- U.S. dollars and in immediately available funds, to the Agent at the Payment Office. The Agent will make available to the applicable Borrower not later than 1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New York time)) on such date at the Payment Office the aggregate of the amounts in immediately available funds made available by the Banks against delivery to the Agent at the Payment Office, or at such other office as the Agent may specify, of the documents and papers provided for herein. The Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. (b) If the Fronting Bank shall not have received from a Borrower the payment required to be made by such Borrower pursuant to (S) 1A(e) within the time specified in such Section, the Fronting Bank will promptly notify the Agent of the L/C Disbursement and the Agent will promptly notify each Bank of such L/C Disbursement and its Applicable Percentage thereof. Not later than 2:00 P.M. (New York time) on such date (or, if such Bank shall have received such notice later than 12:00 Noon (New York time) on any day, no later than 10:00 A.M. (New York time) on the immediately following Business Day), each Bank will make available the amount of its Applicable Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Loan of such Bank and such payment shall be deemed to have reduced the L/C Exposure) in immediately available funds, to the Agent at the Payment Office, and the Agent will promptly pay to the Fronting Bank amounts so received by it from the Banks. The Agent will promptly pay to the Fronting Bank any amounts received by it from such Borrower pursuant to (S) 1A(e) prior to the time that any Bank makes any payment pursuant to this paragraph (b), and any such amounts received by the Agent thereafter will be promptly remitted by the Agent to the Banks that shall have made such payments and to the Fronting Bank, as their interests may appear. If any Bank shall not have made its Applicable Percentage of such L/C Disbursement available to the Agent as provided above, such Bank agrees to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Agent for the account of the Fronting Bank at, for the first such day, the Federal Funds Rate, and for each day thereafter, the Base Rate. 1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding ------------------------------------- principal balance of each Loan shall be due and payable by the Borrower to which such Loan was made on the Expiry Date, subject to the provisions of (S) 2.6. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in (S) 2.1. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan made by such Bank from time to time to each Borrower, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. The Agent shall maintain the Register pursuant to (S) 1.4(b), and a subaccount for each Bank and each Borrower, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the applicable Borrower to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder from each Borrower and each Bank's share thereof. The entries made in the Register and accounts maintained pursuant to this (S) 1.4 shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or -------- ------- the Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein shall not in any manner affect the obligations of each Borrower to repay the Loans in accordance with their terms. The obligations of the Borrowers with respect to their respective Loans shall be several, not joint. (b) The Agent shall maintain at the Payment Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Loans owing to each Bank from each Borrower from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by each Borrower, the Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. 1.5 Special Payment Provisions Unless the Agent shall have been -------------------------- notified by any Bank prior to any date of a Borrowing that such Bank does not intend to make available to the Agent such Bank's portion of the Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of a Borrowing and the Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the applicable Borrower and the applicable Borrower shall pay such amount to the Agent. The Agent shall also be entitled to recover from such Bank or the applicable Borrower, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to the applicable Borrower to the date such amount is recovered by the Agent, at a rate per annum equal to (i) in the case of such Bank, the Federal Funds Rate and (ii) in the case of either Borrower, the applicable rate provided in (S) 2.1 for the applicable Type of Loan. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the applicable Borrower may have against any Bank as a result of the failure of such Bank to perform its obligations hereunder. 1.6 Fees (a) The Borrowers agree to pay to the Agent for pro rata ---- --- ---- distribution to each Bank a Commitment Fee (the "Commitment Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as the Total Commitment shall be terminated as to both Borrowers), on the average daily unused amount of the Commitments, computed at the Applicable Commitment Fee Percentage per annum computed on the basis of the number of days actually elapsed over a year of 365 or 366 days and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date (or such earlier date as the Total Commitment shall be terminated as to both Borrowers). (b) Each Borrower agrees to pay (i) to the Agent for pro rata --- ---- distribution to each Bank a fee (an "L/C Participation Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated as to both Borrowers), on that portion of the average daily L/C Exposure attributable to Letters of Credit issued for the account of such Borrower (excluding the portion thereof attributable to unreimbursed L/C Disbursements), at the rate per annum equal to the Applicable Eurodollar Margin from time to time in effect for such Borrower and (ii) to the Fronting Bank a fronting fee, which shall accrue at the rate of .125% per annum on the average daily amount of the L/C Exposure attributable to Letters of Credit issued for the account of such Borrower (excluding any portion thereof attributable to unreimbursed L/C Disbursements) during the period from and including the Closing Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any L/C Exposure attributable to Letters of Credit issued for the account of such Borrower, as well as the Fronting Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. L/C Participation fees and fronting fees accrued under this paragraph are payable quarterly in arrears on the last day of each calendar quarter and on the date on which the Total Commitment shall be terminated as provided herein. All L/C Participation Fees and fronting fees payable under this paragraph shall be computed on the basis of the number of days actually elapsed over a year of 365 or 366 days. At any time when an Applicable Utilization Fee applies to any Borrower, the L/C Participation Fee will be increased by such Applicable Utilization Fee. 1.7 Reductions in Total Commitments. The Borrowers shall have the -------------------------------- right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to reduce permanently the Total Commitment, in an aggregate amount equal to an integral multiple of $1,000,000 and not less than $10,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any -------- such reduction or termination shall apply proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitments to an amount less than the sum of the aggregate outstanding principal amount of Loans and the aggregate L/C Exposure. 1.8 Compensation The applicable Borrower shall compensate each Bank, ------------ upon such Bank's written request given promptly after learning of the same, for all losses, expenses and liabilities (including, without limitation, any interest paid by such Bank to lenders of funds borrowed by it to make or carry its Eurodollar Loans and any loss sustained by such Bank in connection with the re-employment of such funds), which the Bank sustains: (i) if for any reason (other than a failure of such Bank to perform its obligations) a Borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Notice of Borrowing or notice of conversion (whether or not withdrawn or canceled pursuant to (S) 2.5 or otherwise), (ii) if any repayment or conversion (pursuant to (S) 2.5 or otherwise) of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, or (iii) without duplication of any amounts paid pursuant to (S) 2 hereof, as a consequence of any other default by such Borrower to repay its Eurodollar Loans when required by the terms of this Agreement. A certificate as to any amounts payable to any Bank under this (S) 1.8 submitted to the applicable Borrower by such Bank shall show the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. SECTION 1A. Letters of Credit. (a) General. A Borrower may from ------------------ -------- time to time request the issuance of Letters of Credit for its own account (for obligations of such Borrower or any of its Subsidiaries, or in the case of Finance Co., for any of Parent's Subsidiaries (other than PPL and its Subsidiaries)), denominated in dollars, in form reasonably acceptable to the Agent and the Fronting Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Fronting Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain ---------------------------------------------------------- Conditions. In order to request the issuance of a Letter of Credit (or to - ----------- amend, renew or extend an existing Letter of Credit), the applicable Borrower shall hand deliver or telecopy to the Fronting Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the applicable Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $400,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the ---------------- close of business on the date that is five Business Days prior to the Expiry Date, unless such Letter of Credit expires by its terms on an earlier date. (d) Participations. By the issuance of a Letter of Credit and --------------- without any further action on the part of the Fronting Bank or the Banks, the Fronting Bank hereby grants to each Bank, and each such Bank hereby acquires from the Fronting Bank, a participation in such Letter of Credit equal to such Bank's Applicable Percentage from time to time of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Bank hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Fronting Bank, such Bank's proportionate share of each L/C Disbursement made by the Fronting Bank and not reimbursed by the applicable Borrower forthwith on the date due as provided in (S) 1.3(b). Each Bank acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default or the termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Fronting Bank shall make any L/C -------------- Disbursement in respect of a Letter of Credit, the applicable Borrower shall pay to the Agent an amount equal to such L/C Disbursement not later than two hours after the applicable Borrower shall have received notice from the Fronting Bank that payment of such draft will be made, or, if the applicable Borrower shall have received such notice later than 10:00 A.M. (New York time) on any Business Day, not later than 10:00 A.M. (New York time) on the immediately following Business Day. (f) Obligations Absolute. The applicable Borrower's obligations to --------------------- reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; (iii) the existence of any claim, setoff, defense or other right that the applicable Borrower, any other party guaranteeing, or otherwise obligated with, either Borrower or any subsidiary or other affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Fronting Bank, the Agent or any Bank or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Fronting Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Fronting Bank, the Banks, the Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the applicable Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrowers hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Fronting Bank. However, the foregoing shall not be construed to excuse the Fronting Bank from liability to the applicable Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the applicable Borrower to the extent permitted by applicable law) suffered by the applicable Borrower that are caused by the Fronting Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Fronting Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Fronting Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Fronting Bank. (g) Disbursement Procedures. The Fronting Bank shall, promptly ------------------------ following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Fronting Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Agent and the applicable Borrower (and, if the applicable Borrower is Finance Co., Parent) of such demand for payment and whether the Fronting Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give -------- or delay in giving such notice shall not relieve the applicable Borrower of its obligation to reimburse the Fronting Bank and the Banks with respect to any such L/C Disbursement. The Agent shall promptly give each Bank notice thereof. (h) Interim Interest. If the Fronting Bank shall make any L/C ----------------- Disbursement in respect of a Letter of Credit, then, unless the applicable Borrower shall reimburse such L/C Disbursement in full on the date thereof, the unpaid amount thereof shall bear interest for the account of the Fronting Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the applicable Borrower or the date on which interest shall commence to accrue on the Base Rate Loans resulting from such L/C Disbursement as provided in (S) 1.3(b), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. (i) Cash Collateralization. If any Event of Default with respect to ----------------------- a Borrower shall occur and be continuing, such Borrower shall, on the Business Day it receives notice from the Agent or the Required Banks thereof and of the amount to be deposited, deposit in an account with the Agent, for the benefit of the Banks, an amount in cash equal to the portion of the L/C Exposure attributable to Letters of Credit issued for the account of such Borrower and outstanding as of such date. Such deposit shall be held by the Agent as collateral for the payment and performance of the obligations under this Agreement. The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall not bear interest. Moneys in such account shall automatically be applied by the Agent to reimburse the Fronting Bank for L/C Disbursements attributable to Letters of Credit issued for the account of the Borrower depositing such moneys for which the Fronting Bank has not been reimbursed, and any remaining amounts will either (i) be held for the satisfaction of the reimbursement obligations of such Borrower for the L/C Exposure at such time or (ii) if the maturity of the Loans of such Borrower has been accelerated, be applied to satisfy the obligations of such Borrower under this Agreement. If a Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Borrower within three Business Days after all Events of Default have been cured or waived. SECTION 2. Interest -------- 2.1 Rates of Interest. (a) Each Borrower agrees to pay interest in ------------------ respect of the unpaid principal amount of each Base Rate Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the Base Rate in effect from time to time. (b) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the relevant Quoted Rate plus the Applicable Eurodollar Margin plus the Applicable Utilization Fee, if any. (c) Each Borrower agrees to pay interest in respect of overdue principal of, and (to the extent permitted by law) overdue interest in respect of, each Loan made to it, on demand, at a rate per annum which shall be 2% in excess of the Base Rate in effect from time to time. (d) Interest shall be computed on the actual number of days elapsed on the basis of a 360-day year; provided, however, that for any rate of interest -------- ------- determined by reference to the Prime Rate, interest shall be computed on the actual number of days elapsed on the basis of a year of 365 or 366 days. (e) In computing interest on the Loans, the date of the making of a Loan shall be included and the date of payment shall be excluded, provided, -------- however, that if a Loan is repaid on the same day on which it is made, such day - ------- shall nevertheless be included in computing interest thereon. 2.2 Determination of Rate of Borrowing As soon as practicable after ---------------------------------- 10:00 A.M. (New York time) on the second Business Day prior to the commencement of any Interest Period with respect to a Eurodollar Loan, the Agent shall determine (which determination, absent manifest error, shall be final, conclusive and binding upon all parties) the rate of interest which shall be applicable to such Eurodollar Loan for the Interest Period applicable thereto and shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the applicable Borrower and the Banks. In the event that there is no applicable rate for such Eurodollar Loan: (i) the Agent shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the applicable Borrower and the Banks and (ii) such Loan shall be deemed to have been requested to be made as a Base Rate Loan and (iii) the rate applicable to such Loan shall be the Base Rate in effect from time to time. 2.3 Interest Payment Dates Accrued interest shall be payable (i) in ---------------------- respect of each Eurodollar Loan, at the end of the Interest Period relating thereto and in respect of each Loan with an Interest Period of longer than 3 months, on each 3-month anniversary of the first day of such Interest Period, (ii) in respect of each Base Rate Loan, at the end of each Interest Period relating thereto and (iii) in respect of each Loan, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. 2.4 Conversions; Interest Periods (a) Each Borrower shall have the ----------------------------- option to convert on any Business Day, all or a portion at least equal to $10,000,000 of the outstanding principal amount of the Loans made to it pursuant to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) except as provided in (S)2.5(b), -------- Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Loans pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be converted into Eurodollar Loans if no Default or Event of Default with respect to such Borrower is in existence on the date of the conversion. Each such conversion shall be effected by such Borrower by giving the Agent at its Payment Office, prior to 12:00 Noon (New York time), at least three Business Days (or by 12:00 Noon on the same Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans. (b) At the time a Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period), such Borrower shall have the right to elect, by giving the Agent written notice (or telephonic notice promptly confirmed in writing), the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be a one, two, three or six month period or, subject to availability on the part of each Bank, such shorter period as ends on the Expiry Date. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period applicable to a Borrowing of Eurodollar Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) no Interest Period in respect of any Borrowing of Loans shall extend beyond the Expiry Date; and (iv) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period. If upon the expiration of any Interest Period, a Borrower has failed to elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above or is unable to elect a new Interest Period as a result of (S) 2.4(a)(ii) above, such Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 2.5 Increased Costs, Illegality, Etc. (a) In the event that any --------------------------------- Bank (including the Agent and the Fronting Bank) shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i), (ii) and (iii), shall be made only after consultation with the applicable Borrower and the Agent on the date of such determination) that: (i) on any date for determining the Quoted Rate for any Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Quoted Rate; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof by a governmental authority or otherwise (provided that, in the case of an interpretation not by a governmental -------- authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of Eurodollar Loans, other circumstances affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iv) at any time, that the making or continuance of any Eurodollar Loan or the issuance of any Letter of Credit has become unlawful by compliance by such Bank or by the Fronting Bank in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Bank or to the Fronting Bank as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank Eurodollar market; then, and in any such event, the Bank so affected shall on such date of determination give notice (by telephone confirmed in writing) to each applicable Borrower and to the Agent (who shall give similar notice to each Bank) of such determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above, each applicable Borrower shall pay to such Bank, upon written demand therefor, such additional amounts deemed in good faith by such Bank to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its discretion shall determine) as shall be required to cause such Bank to receive interest with respect to its affected Eurodollar Loan at a rate per annum equal to the then Applicable Eurodollar Margin in excess of the effective pricing to such Bank to make or maintain such Eurodollar Loan and (y) in the case of clause (iv), each applicable Borrower shall take one of the actions specified in (S) 2.5(b) as promptly as possible and, in any event, within the time period required by law. A certificate as to additional amounts owed any such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to each applicable Borrower and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (b) At any time that any of its Loans are affected by the circumstances described in (S) 2.5(a) each applicable Borrower may (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent notice thereof by telephone (confirmed in writing) on the same date that such Borrower was notified by the affected Bank pursuant to (S) 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon at least 3 Business Days' written notice to the Bank, require the Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if more than one Bank is affected at any time, then all affected Banks must be treated in the same manner pursuant to this (S) 2.5(b). (c) In the event that a Borrower shall be paying additional amounts to a Bank pursuant to (S) 2.5(a)(i), (ii) or (iii) or (S) 2.5(d) (and, in the case of (S) 2.5(d), such Bank has not eliminated the increased costs by designating a new Applicable Lending Office) or is unable to incur a Eurodollar Loan from such Bank because of the existence of a condition described in (S) 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90 consecutive days, the Borrowers, the Agent and the Affected Bank shall consult with a view towards (but being under no obligation to) amending this Agreement, with the consent of the Banks other than the Affected Bank (the "Unaffected Banks") which, at such time, have outstanding two-thirds of the aggregate principal amount of the Loans outstanding hereunder (exclusive of the aggregate principal amount of the Loans outstanding of the Affected Bank), to provide for (i) the termination of the Affected Bank's Commitment, provided that such -------- termination is accompanied by payment in full of the outstanding amount of all Loans of the Affected Bank, interest accrued on such amount to the date of payment and all other liabilities and obligations of the Borrowers hereunder (including, without limitation, amounts payable pursuant to (S) 1.8, (S) 2.5(a) or (S) 2.5(d)) with respect to the Affected Bank, and (ii) the substitution of another bank for the Affected Bank and/or the increase, pro rata or otherwise, --- ---- of the Commitments of the Unaffected Banks or otherwise, so that the Total Commitment remains the amount which would be applicable in the absence of the occurrence of clause (i) of this (S) 2.5(c); provided that no Commitment of any Unaffected Bank may be changed without the consent of such Bank. (d) If any Bank reasonably determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank's Commitment hereunder or its obligations hereunder or under any Letter of Credit, then promptly upon receipt of a written demand from such Bank meeting the requirements of this (S) 2.5(d), the applicable Borrowers agree to pay such Bank such additional amounts as shall be required to compensate such Bank for the increased cost to such Bank of making Loans to (or issuing Letters of Credit for the account of) the Borrowers, as a result of such increase in capital for the first Compensation Period (as defined below). After the initial written demand for payment in respect of this (S) 2.5(d) is delivered to the applicable Borrowers by such Bank, written demand for payment may be submitted for each Compensation Period thereafter that this Agreement remains in effect as to such Bank. Each such written demand shall (i) specify (a) the event pursuant to which such Bank is entitled to claim the additional amount, (b) the date on which the event occurred and became applicable to the Bank and (c) the Compensation Period for which the amount is due and (ii) set out in reasonable detail the basis and computation of such additional amount. Each period for which the additional amounts may be claimed by such Bank (a "Compensation Period") shall be the lesser of (x) the number of days actually elapsed since the date the event occurred and became applicable to such Bank or (y) 90 days. Payments made by the applicable Borrowers to any Bank in respect of this (S) 2.5(d) shall be made on the last day of the Compensation Period specified in each written demand with a final payment to be made on the date of termination of this Agreement as to such Bank. Provided that each Bank acts reasonably and in good faith and uses averaging and attribution methods which are reasonable in determining any additional amounts due under this (S) 2.5(d), such Bank's determination of compensation owing under this (S) 2.5(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. No Bank shall be entitled to compensation under this (S) 2.5(d) for any costs incurred with respect to any date unless it shall have notified the applicable Borrowers that it will demand compensation for such costs not more than 60 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs. (e) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of (S) 2.5(d) with respect to such Bank, such Bank shall, if requested by the Borrowers, designate another Applicable Lending Office for any Loans affected by such event with the objective of eliminating, avoiding or mitigating the consequence of the event giving rise to the operation of such section; provided that such Bank and its Applicable Lending Office shall not, in the sole judgment of such Bank, suffer any economic, legal or regulatory disadvantage. Nothing in this (S) 2.5(e) shall affect or postpone any of the obligations of a Borrower or the right of any Bank provided in (S) 2.5(d). 2.6 Extension of Expiry Date (i) The Borrowers may, by sending an ------------------------ Extension Letter to the Agent (in which case the Agent shall promptly deliver a copy to each of the Banks), not less than 30 days and not more than 45 days prior to the Expiry Date then in effect (the "Current Expiry Date"), request that the Banks extend the Expiry Date so that it will occur 364 days after the Current Expiry Date. Each Bank, acting in its sole discretion, shall, by notice to the Agent given not less than 20 days and not more than 30 days prior to the Current Expiry Date, advise the Agent in writing whether or not such Bank agrees to such extension (each Bank that so advises the Agent that it will not extend the Expiry Date being referred to herein as a "Non-extending Bank"); provided -------- that any Bank that does not advise the Agent by the 20th day prior to the Current Expiry Date shall be deemed to be a Non-extending Bank. The election of any Bank to agree to such extension shall not obligate any other Bank to agree. (ii) (A) If Banks holding Commitments that aggregate at least 51% of the Total Commitment on the 20th day prior to the Current Expiry Date shall not have agreed to extend the Expiry Date, then the Current Expiry Date shall not be so extended and the outstanding principal balance of all loans and other amounts payable hereunder shall be payable on the Current Expiry Date. (B) If (and only if) Banks holding Commitments that aggregate at least 51% of the Total Commitment on the 20th day prior to the Current Expiry Date shall have agreed to extend the Expiry Date, then the Expiry Date applicable to the Banks that are not Non-extending Banks shall be the day that is 364 days after the Current Expiry Date. In the event of such extension, the Commitment of each Non- extending Bank shall terminate on the Current Expiry Date, all Loans and other amounts payable hereunder to such Non-extending Banks shall become due and payable on the Current Expiry Date and the Total Commitment of the Banks hereunder shall be reduced by the Commitments of Non-extending Banks so terminated on and after such Current Expiry Date. (iii) In the event that the conditions of clause (B) of paragraph (ii) above have been satisfied, the Borrowers shall have the right on or before the Current Expiry Date, at their own expense, to require any Non-extending Bank to transfer and assign without recourse or representation (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in (S) 10.6) all its interests, rights and obligations under this Agreement (including with respect to any L/C Exposure) to one or more other banks or other financial institutions (which may include any Bank) (each, an "Additional Commitment Bank"), provided that (x) such Additional Commitment Bank, if not already a Bank hereunder, shall be subject to the approval of the Agent (not to be unreasonably withheld), (y) such assignment shall become effective as of the Current Expiry Date and (z) the Additional Commitment Bank shall pay to such Non-extending Bank in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-extending Bank hereunder and all other amounts accrued for such Non-extending Bank's account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Expiry Date shall become effective unless, on the Current Expiry Date, the conditions set forth in paragraphs (a), (b) and (d) of (S)(S) 4.2A and 4.2B shall be satisfied (with all references in such paragraphs to the making of a Loan or issuance of a Letter of Credit being deemed to be references to the extension of the Commitments on the Current Expiry Date) and the Agent shall have received a certificate to that effect dated the Current Expiry Date and executed by a responsible officer of each of the Borrowers and Parent. SECTION 3. Payments -------- 3.1 Payments on Non-Business Days. Whenever any payment to be made ------------------------------ hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, if a payment of principal has been so extended, interest shall be payable on such principal at the applicable rate during such extension. 3.2 Voluntary Prepayments Each Borrower shall have the right to --------------------- prepay its Loans in whole or in part, without premium or penalty, from time to time pursuant to this (S) 3.2 on the following terms and conditions: (i) the applicable Borrower shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less, the amount then remaining outstanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on the basis of such Loans, --- ---- except as otherwise provided in (S) 2.5; (iv) at the time of any prepayment, the applicable Borrower shall pay all interest accrued on the principal amount of said prepayment and, if the applicable Borrower prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, the applicable Borrower shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in (S) 1.8. 3.3 Method and Place of Payment, Etc. Except as expressly provided --------------------------------- herein, all payments under this Agreement shall be made to the Agent for the ratable account of the Banks not later than Noon (New York time) on the date when due and shall be made in freely transferable U.S. dollars and in immediately available funds at the Payment Office (or, if such payment is made in respect of principal of or interest on any Eurodollar Loan, for the account of such non-U.S. office of the Agent as the Agent may from time to time direct). Unless the Agent shall have been notified by the applicable Borrower prior to the date on which any payment to be made by the applicable Borrower hereunder is due that the applicable Borrower does not intend to remit such payment, the Agent may, at its discretion, assume that the applicable Borrower has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank (for the account of its applicable lending office) on such payment date an amount equal to such Bank's share of such assumed payment. If the applicable Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Rate. On the commencement date of each Interest Period and on each date occurring two Business Days prior to an Interest Payment Date, the Agent shall notify the applicable Borrower of the amount of interest and/or fees due at the end of such Interest Period or on such Interest Payment Date (assuming, in the case of Base Rate Loans, that there is no change in the rate of interest applicable to the applicable Base Rate Loan); provided, however, that failure to so notify the applicable Borrower shall not affect such Borrower's obligation to make any such payments. 3.4 Net Payments All payments under this Agreement shall be made ------------ without set-off or counterclaim and in such amounts as may be necessary in order that all such payments of principal and interest in connection with Loans (after deduction or withholding for or on account of (i) any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, excluding any tax on or measured by the net income of a Bank pursuant to the income tax laws of the jurisdiction where such Bank's principal or lending office is located or in which such Bank maintains a place of business (all such non- excluded taxes, levies, imposts, duties or other charges, the "Taxes") and (ii) any taxes on or measured by the net income payable by any such Bank with respect to the amount by which the payments required to be made by this (S) 3.4 exceed the amount otherwise specified to be paid under this Agreement) shall not be less than the amounts otherwise specified to be paid under this Agreement; and the Borrowers further agree to pay and to save the Agent, the Fronting Bank and the Banks (and any participant, to the extent provided in Section 10.6(b)(B)) harmless, on an after-tax basis, from all liability for Taxes on or in connection with Loans or any payments thereunder, and any interest, penalties or additions with respect thereto, provided, however, that such interest, penalties ----------------- and additions are not a result of any action, omission or failure to act on the part of the Agent, the Fronting Bank or the Banks. A certificate as to any additional amounts payable to any Bank under this (S) 3.4 submitted to the applicable Borrower by such Bank shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the applicable Borrower shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. SECTION 4. Conditions Precedent -------------------- 4.1 Conditions to Effectiveness. On the Closing Date: --------------------------- (a) The Agent shall have received from the general counsel or senior counsel of PPL a favorable opinion dated the Closing Date substantially in the form of Exhibit A hereto. In addition, upon the expiration of the Existing FERC Order and the issuance of a new order of the FERC (in each case as defined in (S) 7.2A) authorizing borrowings hereunder (the "New FERC Order"), PPL will, upon the request of the Agent, provide an updated opinion of its general counsel or senior counsel, substantially to the effect of Exhibit A hereto, but revised to reflect the New FERC Order. (b) The Agent shall have received an opinion of Thelen Reid & Priest LLP, counsel for PPL, Finance Co. and Parent, addressed to the Agent, the Fronting Bank and the Banks, dated the Closing Date, with respect to the enforceability of this Agreement against PPL and Finance Co., and with respect to the enforceability of the guarantee hereunder by Parent of the obligations of Finance Co. against Parent, substantially in the form of Exhibit B hereto. In addition, upon the expiration of the Existing FERC Order and the issuance of the New FERC Order, PPL will, upon the request of the Agent, provide an updated opinion of Thelen Reid & Priest LLP, substantially to the effect of Exhibit B hereto, but revised to reflect the New FERC Order. (c) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement (including resolutions of the Board of Directors of PPL, Finance Co. and Parent and certificates as to the incumbency of the officers signing this Agreement or any certificate delivered in connection herewith) shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents that it has requested, such documents where appropriate to be certified by proper corporate or governmental authorities. (d) The Agent shall have received from each of the Banks, the Fronting Bank, PPL, Finance Co. and Parent a duly executed and delivered counterpart hereof. (e) The conditions set forth in (S)(S) 4.2A and 4.2B (other than (S) 4.2A(c) and (S) 4.2B(c)) shall have been satisfied. (f) The Agent shall have received a certificate signed by appropriate officers of PPL stating that all regulatory approvals necessary to permit PPL to enter into this Agreement and to perform its obligations hereunder have been obtained and are in full force and effect and attaching evidence of all such regulatory approvals. (g) The Agent shall have received all accrued facility fees through the Closing Date. (h) The Agent shall be satisfied that no Loans shall be outstanding under the Existing Credit Agreement and no accrued interest shall be owing thereunder. 4.2A Conditions to Each Loan to PPL and Each Issuance of a Letter of --------------------------------------------------------------- Credit for the account of PPL. The obligation of each Bank to make each Loan to - ------------------------------ PPL (excluding any conversions of one Type of Loan to another Type pursuant to (S) 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the account of PPL hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by PPL that the conditions specified in (S)(S) 4.2A(a), (b), (d) and (e) below are then satisfied: (a) No Default. At the time of the making each such Loan to PPL, and ----------- the issuance of each Letter of Credit for the account of PPL and after giving effect thereto, there shall exist no Default or Event of Default with respect to PPL. (b) Representations and Warranties. At the time of the making of ------------------------------- each such Loan to PPL and the issuance of each such Letter of Credit for the account of PPL and after giving effect thereto, all representations and warranties contained in (S) 7A hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of -------------------- Borrowing from PPL as required by (S) 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice from PPL requesting the issuance of such Letter of Credit as required by (S) 1A(b). (d) No Adverse Change. Since December 31, 1999, there shall have ------------------ been no change in the business, assets, financial condition or operations of PPL and its Subsidiaries taken as a whole which materially and adversely affects the ability of PPL to perform any of its obligations hereunder. (e) Regulatory Approval. The making of such Loan to PPL or the -------------------- issuance of such Letter of Credit for the account of PPL shall not cause the aggregate dollar amount of Loans and Letters of Credit outstanding for the account of PPL to exceed the amount of such obligations for which PPL has obtained the necessary regulatory approval. 4.2B Conditions to Each Loan to Finance Co. and Each ----------------------------------------------- Issuance of a Letter of Credit for the account of Finance Co. The ------------------------------------------------------------- obligation of each Bank to make each Loan to Finance Co. (excluding any conversions of one Type of Loan to another Type pursuant to (S) 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the account of Finance Co. hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by Finance Co. that the conditions specified in (S)(S) 4.2B(a), (b) and (d) below are then satisfied: (a) No Default. At the time of the making of each such Loan to ----------- Finance Co. and the issuance of each Letter of Credit for the account of Finance Co. and after giving effect thereto, there shall exist no Default or Event of Default with respect to Finance Co. (b) Representations and Warranties. At the time of the making of ------------------------------- each such Loan to Finance Co. and the issuance of each such Letter of Credit for the account of Finance Co. and after giving effect thereto, all representations and warranties contained in (S) 7B hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of -------------------- Borrowing from Finance Co. as required by (S) 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice from Finance Co. requesting the issuance of such Letter of Credit as required by (S) 1A(b). (d) No Adverse Change. Since December 31, 1999, there shall have been ----------------- no change in the business, assets, financial condition or operations of Parent and its Subsidiaries taken as a whole which materially and adversely affects the ability of Parent to perform any of its obligations hereunder. SECTION 5.A Covenants of PPL. ---------------- While this Agreement is in effect and until the Total Commitment has been terminated with respect to PPL, all obligations of PPL hereunder shall have been paid in full and all Letters of Credit issued for the account of PPL shall have been canceled or have expired and all amounts drawn thereunder shall have been reimbursed in full, PPL agrees that: 5.1A Financial Statements. PPL will furnish to each Bank: -------------------- (a) within 120 days after the end of each fiscal year 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 for PPL and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by PricewaterhouseCoopers LLP or other independent auditors of recognized standing selected by it; (b) within 60 days after the end of each of the first three quarters in each fiscal year, 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 for itself and its consolidated Subsidiaries prepared in conformity with GAAP; (c) within 120 days after the end of each fiscal year, a copy of its Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of its Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding its business, affairs and financial condition as any Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to it a certificate of a financial officer specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that PPL proposes to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of PPL to the effect that no Default or Event of Default with respect to it has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D-1 hereto ("PPL Compliance Certificate") demonstrating compliance with (S) 5.4A. 5.2A Mergers. PPL will not merge or consolidate with any Person if -------- PPL is not the survivor unless (a) the survivor assumes the obligations of PPL hereunder, (b) the survivor is a utility and (c) the senior secured debt ratings of the survivor by Moody's and S&P as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Agent), are at least equal to the ratings of PPL's First Mortgage Bonds (or other senior secured debt) immediately prior to such merger or consolidation. 5.3A Ratings. PPL will use its best efforts to promptly notify the -------- Banks upon obtaining knowledge of any change in, or cessation of, ratings of PPL's First Mortgage Bonds (or other senior secured debt) by Moody's or S&P. 5.4A Consolidated Indebtedness to Consolidated Capitalization. The --------------------------------------------------------- ratio of Consolidated Indebtedness of PPL to Consolidated Capitalization of PPL shall not exceed 70% at any time. SECTION 5.B Covenants of Finance Co. and Parent. ------------------------------------ While this Agreement is in effect and until the Total Commitment has been terminated with respect to Finance Co., all obligations of Finance Co. and Parent hereunder shall have been paid in full and all Letters of Credit issued for the account of Finance Co. shall have been canceled or have expired and all amounts drawn thereunder shall have been reimbursed in full, each of Finance Co. and Parent agrees that: 5.1B Financial Statements. Parent will furnish to each Bank: -------------------- (a) within 120 days after the end of each fiscal year (i) 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 for Parent and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by PricewaterhouseCoopers LLP or other independent auditors of recognized standing selected by it and (ii) Parent's unconsolidated balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year; (b) within 60 days after the end of each of the first three quarters in each fiscal year, 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 for (i) Parent and its consolidated Subsidiaries prepared in conformity with GAAP, and (ii) Parent's unconsolidated balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flow for such quarterly period; (c) within 120 days after the end of each fiscal year, a copy of Parent's Form 10-K Report to the SEC and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of Parent's Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding Parent's business, affairs and financial condition as any Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to Finance Co. a certificate of a financial officer of Parent and an officer of Finance Co. specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that Parent and Finance Co. propose to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of Parent to the effect that no Default or Event of Default with respect to Finance Co. has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D-2 hereto ("Parent Compliance Certificate") demonstrating compliance with (S) 5.5B. 5.2B Mergers. (i) (1) Parent will not merge or consolidate with any -------- Person if Parent is not the survivor unless (a) the survivor assumes Parent's obligations hereunder, (b) substantially all of the consolidated assets and consolidated revenues of the survivor are anticipated to come from a utility or energy business or utility or energy businesses and (c) the senior unsecured debt ratings of the survivor by Moody's or S&P, as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Required Banks), are at least equal to the ratings of Resource's senior unsecured debt immediately prior to such merger or consolidation; (2) Parent will not dispose of any common stock of either Borrower or any securities convertible into common stock of either Borrower, except in connection with any merger or consolidation permitted under this (S) 5.2B or under (S) 5.2A, and except that Parent shall be allowed to sell, transfer or otherwise dispose of PPL's common stock to PPL or any Subsidiary of Parent. (ii) Finance Co. will not merge into or consolidate with any other Person except (a) Parent or a successor of Parent permitted by this Section or (b) any other Person which is a wholly owned subsidiary of Parent or a successor of Parent permitted by this Section. 5.3B Ratings. Finance Co. and Parent will each use their best -------- efforts to promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of Parent's senior unsecured debt by Moody's or S&P. 5.4B Liens. Parent will not create, incur, or suffer to exist any ------ Lien in or on the common stock of PPL or Finance Co. or on securities convertible into the common stock of PPL or Finance Co. (in either case, now or hereafter acquired) other than Permitted Liens. 5.5B Consolidated Indebtedness to Consolidated Capitalization. The --------------------------------------------------------- ratio of Consolidated Indebtedness of Parent to Consolidated Capitalization of Parent shall not exceed 70% at any time. SECTION 6.A Events of Default with Respect to PPL. -------------------------------------- Each of the following events shall constitute an "Event of Default" with respect to PPL: 6.1A Representations, Etc. Any certificate furnished by PPL to the --------------------- Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by PPL herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2A Principal and Interest. PPL shall fail to make any payment of ----------------------- principal on any of its Loans or any other payment payable by PPL hereunder (including the reimbursement of any L/C Disbursement) when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3A Defaults by PPL Under Other Agreements. PPL shall (i) fail to --------------------------------------- pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4A Judgments. PPL shall fail within 60 days to pay, bond or ---------- otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5A Bankruptcy, Etc. PPL 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 shall be commenced against PPL or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or PPL shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of PPL or PPL shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to PPL or there shall be commenced against PPL any such proceeding which remains undismissed for a period of 60 days or PPL shall be adjudicated insolvent or bankrupt; or PPL shall fail 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 shall be entered; or PPL by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; or PPL shall make a general assignment for the benefit of creditors; or any corporate action shall be taken by PPL for the purpose of effecting any of the foregoing; or 6.6A Other Covenants. PPL 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 PPL from the Agent or the Required Banks. SECTION 6.B Events of Default with Respect to Finance Co. --------------------------------------------- Each of the following events shall constitute an "Event of Default" with respect to Finance Co.: 6.1B Representations, Etc. Any certificate furnished by Finance Co. --------------------- or Parent to the Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by Finance Co. or Parent herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2B Principal and Interest. Either Finance Co. or Parent shall fail ----------------------- to make any payment of principal on any Loan to Finance Co. or any other payment payable by Finance Co. or Parent hereunder (including the reimbursement of any L/C Disbursement) when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3B Defaults by Finance Co. or Parent Under Other Agreements. -------------------------------------------------------- Finance Co. or Parent shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $40,000,000, in the case of Indebtedness of Parent or Indebtedness of Finance Co. guaranteed by Parent or, in the case of Indebtedness of Finance Co. not guaranteed by Parent, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument (including any term, covenant, condition or agreement herein) evidencing or governing any such Indebtedness in a principal amount in excess of, in the case of Indebtedness of Parent or Indebtedness of Finance Co. guaranteed by Parent, $40,000,000 or, in the case of Indebtedness of Finance Co. not guaranteed by Parent, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4B Judgments. Finance Co. or Parent shall fail within 60 days to ---------- pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5B Bankruptcy, Etc. Finance Co. or Parent shall commence a ---------------- voluntary case concerning itself under the Bankruptcy Code; or an involuntary case shall be commenced against Finance Co. or Parent or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or Finance Co. or Parent shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of Finance Co. or Parent or Finance Co. or Parent shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Finance Co. or Parent or there shall be commenced against Finance Co. or Parent any such proceeding which remains undismissed for a period of 60 days or Finance Co. or Parent shall be adjudicated insolvent or bankrupt; or Finance Co. or Parent shall fail 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 shall be entered; or Finance Co. or Parent by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; Finance Co. or Parent shall make a general assignment for the benefit of creditors; or any corporate action shall be taken by Finance Co. or Parent for the purpose of effecting any of the foregoing; or 6.6B Other Covenants. Finance Co. or Parent 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 Finance Co. or Parent, as the case may be, from the Agent or the Required Banks; or 6.7B Events of Default with Respect to PPL. An Event of Default -------------------------------------- shall occur with respect to PPL. If any Event of Default with respect to PPL as specified in Section 6A shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to PPL, declare the principal of and accrued interest in respect of all of PPL's outstanding Loans to be, whereupon the same and all other amounts due from PPL 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 PPL, anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall by written notice to PPL, declare the Total Commitment as to PPL terminated, whereupon the Commitment of each Bank (insofar as it is available to PPL) and the obligation of each Bank to make its Loans hereunder to PPL and the obligation of the Fronting Back to issue Letters of Credit for the account of PPL hereunder shall terminate immediately and any accrued Commitment Fee owed by PPL shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in (S) 6.5A shall occur with respect to PPL, the results which would otherwise occur only upon the giving of written notice by the Agent to PPL 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 Banks to give such notice. If any Event of Default with respect to Finance Co. as specified in Section 6B shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to Parent and Finance Co., declare the principal of and accrued interest in respect of all of Finance Co.'s outstanding Loans to be, whereupon the same and all other amounts due from Parent or Finance Co. 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 Parent and Finance Co., anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall, by written notice to Parent and Finance Co., declare the Total Commitment as to Finance Co. terminated (insofar as it is available to Finance Co.), whereupon the Commitment of each Bank and the obligation of each Bank to make its Loans to Finance Co. hereunder and the obligations of the Fronting Bank to issue Letters of Credit for the account of Finance Co. shall terminate immediately and any accrued Commitment Fee owed by Finance Co. shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in (S) 6.5B shall occur with respect to Finance Co., the results which would otherwise occur only upon the giving of written notice by the Agent to Finance Co. 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 Banks to give such notice. SECTION 7.A Representations and Warranties of PPL. ------------------------------------- In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans to PPL and issue the Letters of Credit for the account of PPL, in each case, as provided for herein, PPL makes the following representations and warranties to the Banks and the Fronting Bank: 7.1A Corporate Status. It 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 to borrow hereunder. 7.2A Authority; No Conflict. The making and performance by it of ---------------------- 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 party, provided that borrowings hereunder have been authorized under a Letter Order (the "Existing FERC Order") of the Federal Energy Regulatory Commission ("FERC"), dated February 18, 1999, which expires on February 28, 2001. PPL acknowledges and agrees that a new order from the FERC will be required after such date in order for PPL to continue to make borrowings and otherwise incur obligations hereunder. 7.3A Legality, Etc. This Agreement constitutes the legal, valid and -------------- binding obligation of PPL, enforceable in accordance with its 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. 7.4A Financial Statements. The consolidated financial statements of -------------------- PPL and its consolidated Subsidiaries for the year ended as at December 31, 1999, furnished to the Banks, fairly present its consolidated financial position at December 31, 1999 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of PPL that would materially and adversely affect the ability of PPL to perform any of its obligations hereunder. 7.5A Litigation. Except as disclosed in or contemplated by PPL's ---------- Form 10-K Report to the SEC for the year ended December 31, 1999 or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding is pending or, to its knowledge, threatened, which, if determined adversely to PPL, would materially and adversely affect its ability to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of PPL, threatened which questions the validity of this Agreement. 7.6A No Violation. No part of the proceeds of the borrowings by PPL ------------ under this Agreement or of any Letter of Credit issued for its account will be used, directly or indirectly by PPL 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 Regulation U or X of said Board of Governors. PPL 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." 7.7A ERISA. There have not been any "reportable events," as that ----- term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to PPL. 7.8A Consents. No authorization, consent or approval from -------- governmental bodies or regulatory authorities is required for the making and performance by PPL of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans or the issuance of any Letters of Credit and are in full force and effect at the time of the making of each Loan and the issuance of each Letter of Credit. 7.9A Intentionally Omitted. --------------------- 7.10A Investment Company Act. PPL is not an "investment company" ---------------------- that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.11A Public Utility Holding Company Act. PPL is not a "holding ---------------------------------- company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.12A Tax Returns. PPL has filed or caused to be filed all Federal, ----------- state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which PPL shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.13A Compliance with Laws. PPL is in compliance with all laws, -------------------- regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 7.B Representations and Warranties of Finance Co. and Parent. -------------------------------------------------------- In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans to Finance Co. and issue the Letters of Credit for the account of Finance Co., in each case as provided for herein, each of Finance Co. and Parent makes the following representations and warranties to the Banks and the Fronting Bank: 7.1B Corporate Status. Parent 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 Finance Co. is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2B Authority; No Conflict. The making and performance by Parent ---------------------- and Finance Co. of 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 Parent or Finance Co., as the case may be, is a party. 7.3B Legality, Etc. This Agreement constitutes the legal, valid and -------------- binding obligation of each of Parent and Finance Co., enforceable against Parent or Finance Co., as the case may be, in accordance with its 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. 7.4B Financial Statements. The consolidated financial statements of -------------------- Parent for the year ended as at December 31, 1999, furnished to the Banks, fairly present Parent's consolidated financial position at December 31, 1999 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of Parent that would materially and adversely affect its ability to perform any of its obligations hereunder. 7.5B Litigation. Except as disclosed in or contemplated by Parent's ---------- Form 10-K Report to the SEC for the year ended December 31, 1999, or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding against Parent or Finance Co. is pending or, to Parent's knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of Parent to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of Parent, threatened which questions the validity of this Agreement. 7.6B No Violation. No part of the proceeds of the borrowings by ------------ Finance Co. under this Agreement or of any Letter of Credit issued for its account will be used, directly or indirectly by Finance Co. or any Subsidiary of Parent 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 Regulation U or X of said Board of Governors. Neither Parent nor Finance Co. is 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." 7.7B ERISA. There have not been any "reportable events," as that ----- term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Parent. 7.8B Consents. No authorization, consent or approval from -------- governmental bodies or regulatory authorities is required for the making and performance by Resource or Finance Co. of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans or the issuance of any Letters of Credit and are in full force and effect at the time of the making of each Loan and the issuance of each Letter of Credit. 7.9B Investment Company Act. Neither Parent nor Finance Co. is an ---------------------- "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.10B Public Utility Holding Company Act. Parent is a "holding ---------------------------------- company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1) thereof. Finance Co. is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.11B Tax Returns. Parent and Finance Co. have filed or caused to be ----------- filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Parent shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.12B Compliance with Laws. Each of Parent and Finance Co. is in -------------------- compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 8. Agent. ----- 8.1 Appointment. The Banks hereby appoint First Union National ----------- Bank as Agent (such term to include Agent acting as Agent) to act as herein specified. Each Bank and the Fronting Bank hereby irrevocably authorizes, and each assignee of any Bank or the Fronting Bank shall be deemed irrevocably to authorize, the Agent to take such action on their behalf under the provisions of this Agreement and any instruments, documents and agreements referred to herein (such instruments, documents and agreements being herein referred to as the "Loan Documents") and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. 8.2 Nature of Duties. The duties of the Agent shall be mechanical ---------------- and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Bank or of the Fronting Bank. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein. Each Bank and the Fronting Bank shall make its own independent investigation of the financial condition and affairs of PPL, Finance Co. and Parent and each of their Subsidiaries in connection with the making and the continuance of the Loans and the issuance of Letters of Credit hereunder and shall make its own appraisal of the creditworthiness of PPL, Parent and Finance Co.; and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank or the Fronting Bank with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or the issuance of Letters of Credit or at any time or times thereafter. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Bank or the Fronting Bank for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by (S) 8.3. 8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its ------------------------- officers, directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Bank or to the Fronting Bank for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not be responsible to any Bank or to the Fronting Bank for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the financial condition of PPL, Finance Co. or Parent. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of PPL, Finance Co. or Parent, or the existence or possible existence of any Default or Event of Default. The Agent may at any time request instructions from the Banks with respect to any actions or approvals which by the terms of this Agreement or any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under this Agreement or any of the Loan Documents until it shall have received such instructions from the Required Banks or all Banks, as required. Without limiting the foregoing, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the Loan Documents in accordance with the instructions of the Required Banks or all Banks, as required. 8.4 Reliance. The Agent shall be entitled to rely upon any written -------- notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all legal matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. 8.5 Indemnification. To the extent that the Agent is not reimbursed --------------- and indemnified by PPL, Parent or Finance Co., the Banks will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the Loan Documents, in proportion to their respective Commitments hereunder; provided, however, that no Bank shall be liable for any portion of -------- ------- such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or wilful misconduct. The obligations of the Banks under this (S) 8.5 shall survive the payment in full of outstanding Loans, the expiration of any Letter of Credit and the termination of this Agreement. 8.6 The Agent, Individually. With respect to its Commitment ----------------------- hereunder and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Bank. The terms "Banks," "Required Banks" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank or one of the Required Banks. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with PPL, Finance Co. or Parent as if it were not acting pursuant hereto. 8.7 Resignation by the Agent. The Agent may resign from the ------------------------ performance of all its functions and duties hereunder at any time by giving 30 Business Days' prior written notice to each Borrower, Parent and the Banks. Such resignation shall take effect upon the expiration of such 30 Business Day period or upon the earlier appointment of a successor. Upon any such resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Borrowers and Parent and shall be an incorporated bank or trust company. In the event no such successor shall have been so appointed, then any notification, demand or other communication required or permitted to be given by the Agent on behalf of the Banks to the Borrowers hereunder shall be sufficiently given if given by the Required Banks, and any notification, demand, other communication, document, statement, other paper or payment required to be made, given or furnished by PPL, Finance Co. or Parent to the Agent for distribution to the Banks shall be sufficiently made, given or furnished if made, given or furnished by PPL, Finance Co. or Parent, as applicable, directly to each Bank entitled thereto and, in the case of payments, in the amount to which each such Bank is entitled from the applicable Borrower. All powers specifically delegated to the Agent by the terms hereof may be exercised by the Required Banks. SECTION 9. Parent Guarantee. ---------------- In order to induce the Banks to extend credit hereunder to Finance Co., Parent hereby irrevocably and unconditionally guarantees, as primary obligor and not merely as a surety, the Finance Co. Obligations. Parent further agrees that the due and punctual payment of the Finance Co. Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guarantee hereunder notwithstanding any such extension or renewal of any Finance Co. Obligation. Parent waives presentment to, demand of payment from and protest to Finance Co. of any of the Finance Co. Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of Parent hereunder shall not be affected by (a) the failure of any Bank or the Agent to assert any claim or demand or to enforce any right or remedy against Finance Co. under the provisions of this Agreement or otherwise, (b) change or increase in the amount of any of the Finance Co. Obligations, whether or not consented to by Parent, or (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any other agreement. Parent further agrees that its agreement hereunder constitutes a promise of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Finance Co. Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Bank to any balance of any deposit account or credit on the books of any Bank in favor of any other person. The obligations of Parent hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Finance Co. Obligations, any impossibility in the performance of the Finance Co. Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of Parent hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agent or any Bank to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Finance Co. Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of Parent or otherwise operate as a discharge of Parent or Finance Co. as a matter of law or equity. Parent further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Finance Co. Obligation is rescinded or must otherwise be restored by the Agent or any Bank upon the bankruptcy or reorganization of Finance Co or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Agent or any Bank may have at law or in equity against Parent by virtue hereof, upon the failure of Finance Co. to pay any Finance Co. Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Parent hereby promises to and will, upon receipt of written demand by the Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid Finance Co. Obligation. Upon payment by Parent of any Finance Co. Obligation, each Bank shall, in a reasonable manner, assign the amount of such Finance Co. Obligation owed to it and so paid to Parent, such assignment to be pro tanto to the extent to which --- ----- the Finance Co. Obligation in question was discharged by Parent, or make such disposition thereof as Parent shall direct (all without recourse to any Bank and without any representation or warranty by any Bank). Upon payment by Parent of any sums as provided above, all rights of Parent against Finance Co. arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the Finance Co. Obligations owed by Finance Co. to the Banks. SECTION 10. Miscellaneous. ------------- 10.1 Definitions. As used herein the following terms shall have the ----------- meanings herein specified and shall include in the singular number the plural and in the plural number the singular: "Affected Bank" shall have the meaning assigned that term in (S) ------------- 2.5(c). "Agent" shall mean First Union National Bank and shall include (i) any ----- successor corporation thereto by merger, consolidation or otherwise and (ii) any successor to the Agent appointed pursuant to (S) 8.7. "Aggregate Credit Exposure" shall mean the aggregate amount of the ------------------------- Banks' Credit Exposures. "Agreement" shall mean this Revolving Credit Agreement, as it may from --------- time to time be amended, supplemented or otherwise modified. "Applicable Commitment Fee Percentage" shall mean for the Borrowers, ------------------------------------ the percentage specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which PPL's First Mortgage Bonds are assigned a rating by either of Moody's or S&P. "Applicable Eurodollar Margin" shall mean (i) for PPL, the margin ---------------------------- specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which PPL's First Mortgage Bonds are assigned ratings by either of Moody's or S&P or (ii) for Finance Co., the margin specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which Parent's senior unsecured debt is assigned ratings by either of Moody's or S&P. "Applicable Lending Office" shall mean, with respect to each Bank, (i) ------------------------- such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii) such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Percentage" of any Bank at any time shall mean the --------------------- percentage of the Total Commitment represented by such Bank's Commitment. In the event the Commitments shall have expired or been terminated, the Applicable Percentages shall be determined on the basis of the Commitments most recently in effect, but giving effect to assignments pursuant to (S) 10.6. "Applicable Rate" shall mean and include the Applicable Commitment Fee --------------- Percentage for undrawn Commitments or Applicable Eurodollar Margin for any Loans or issued Letters of Credit and at any time will be determined based on the highest applicable Category set forth below (the highest category being Category A).
============================================================================ Criteria Ratings Applicable Applicable (S&P/Moody's) Commitment Fee Eurodollar Percentage Margin ============================================================================ Category A: A- or better/ .080% .400% A3 or better ============================================================================ Category B: BBB+/Baa1 .100% .450% ============================================================================ Category C: BBB/Baa2 .125% .500% ============================================================================ BBB-/Baa3 .150% .600% Category D: ============================================================================ Category E: BB+ or below/ .200% .750% Ba1 or below ============================================================================
"Applicable Utilization Fee" shall mean on any day (i) for PPL, the -------------------------- applicable percentage specified as such in the table set forth below corresponding to (a) the percentage of the Total Commitments represented by the aggregate outstanding Loans and L/C Exposures on such day and (b) the highest rating category in which PPL's First Mortgage Bonds are assigned ratings by either of Moody's or S&P or (ii) for Finance Co., the applicable percentage specified as such in the table set forth below corresponding to (a) the percentage of the Total Commitments represented by the aggregate outstanding Loans and L/C Exposures on such day and (b) the highest rating category in which Parent's senior unsecured debt is assigned ratings by either of Moody's or S&P:
============================================================================================ Ratings Usage * 25% and (Pounds) Usage * 75% of Total (S&P/Moody's) 75% of Total Commitments Commitments - -------------------------------------------------------------------------------------------- Category A A- or better/ .100% .200% A3 or better - -------------------------------------------------------------------------------------------- Category B BBB+ / Baa1 .125% .250% - -------------------------------------------------------------------------------------------- Category C BBB / Baa2 .150% .300% - -------------------------------------------------------------------------------------------- Category D BBB- / Baa3 .250% .500% - -------------------------------------------------------------------------------------------- Category E BB+ or below/ .250% .500% Ba1 or below ============================================================================================
* = greater than "Bank" shall mean each Person listed on Schedule I hereto and any ---- other Person that shall have become a party hereto as a result of an assignment pursuant to Section 10.6(b)(A) hereto, other than any such Person that ceases to be a party hereto as a result of an assignment pursuant to Section 10.6(b)(A) hereto. "Bankruptcy Code" shall have the meaning assigned that term in --------------- (S) 6.5A. "Base Rate" shall mean, for any day, a rate per annum equal to --------- the higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. "Base Rate Lending Office" means, with respect to each Bank, the ------------------------ office of such Bank specified as its "Base Rate Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrowers and the Agent. "Base Rate Loan" shall mean any Loan during any period during -------------- which such Loan is bearing interest at the rates provided for in (S) 2.1(a). "Borrower" shall mean either PPL or Finance Co. and "Borrowers" -------- --------- shall mean PPL and Finance Co. "Borrowing" shall mean the incurrence of one Type of Loan to a --------- Borrower from all the Banks on a given date, all of which Eurodollar Loans shall have the same Interest Period, pursuant to (S) 1.2; provided, -------- however, that Loans to a Borrower of a different Type extended by ------- one or more Banks pursuant to (S) 2.5(b) shall be considered a part of the related Borrowing. "Business Day" shall mean (i) for all purposes other than as covered ------------ by clause (ii) below, any day excluding Saturday, Sunday and any day on which banks in New York City are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Capital Lease Obligations" of any person shall mean obligations of ------------------------- such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Closing Date" shall mean the date of this Agreement. ------------ "Commitment", for each Bank, shall mean the amount specified opposite ---------- its name on Schedule I hereto or in the assignment pursuant to which such Bank shall have assumed its Commitment, as applicable, such Commitment to be reduced by the amount of any reduction thereto effected pursuant to (S) 1.7, (S) 6 and/or (S) 10.6(b)(A). "Commitment Fee" shall have the meaning assigned that term in (S) -------------- 1.6(a). "Consolidated Capitalization of PPL" shall mean the sum of (A) the ---------------------------------- Consolidated Indebtedness of PPL and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of PPL and (ii) the aggregate amount of Hybrid Preferred Securities of PPL, except that for purposes of calculating Consolidated Capitalization of PPL, Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of PPL and Consolidated Capitalization of PPL shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of PPL. "Consolidated Capitalization of Parent" shall mean the sum of (A) the ------------------------------------- Consolidated Indebtedness of Parent and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of Parent and (ii) the aggregate amount of Hybrid Preferred Securities of Parent, except that for purposes of calculating Consolidated Capitalization of Parent, Consolidated Indebtedness of Parent shall exclude Non-Recourse Indebtedness of Parent and Consolidated Capitalization of Parent shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of Parent. "Consolidated Indebtedness of PPL" shall mean the consolidated -------------------------------- Indebtedness of PPL (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of PPL and (2) Consolidated Indebtedness of PPL shall exclude any Hybrid Preferred Securities of PPL. "Consolidated Indebtedness of Parent" shall mean the consolidated ----------------------------------- Indebtedness of Parent (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of Parent shall exclude Non-Recourse Indebtedness of Parent and (2) Consolidated Indebtedness of Parent shall exclude any Hybrid Preferred Securities of Parent. "Credit Exposure", for each Bank at any time, shall mean the aggregate --------------- principal amount at such time of all outstanding Loans of such Bank to the Borrowers plus the aggregate amount at such time of such Bank's L/C Exposure. ---- "Default" with respect to a Borrower, shall mean any event, act or ------- condition which with notice or lapse of time or both would constitute an Event of Default with respect to that Borrower. "Eligible Transferee" shall mean and include a commercial bank, ------------------- financial institution or other "accredited investor" (as defined in SEC Regulation D). "Eurodollar Lending Office" shall mean, with respect to each Bank, the ------------------------- office of such Bank specified as its "Eurodollar Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrowers and the Agent. "Eurodollar Loan" shall mean any loan during any period during which --------------- such Loan is bearing interest at the rates provided for in (S) 2.1(b). "Event of Default" shall mean with respect to PPL each of the Events ---------------- of Default specified in (S) 6A and with respect to Finance Co., each of the Events of Default specified in (S) 6B. "Existing Credit Agreement" shall have the meaning assigned to such ------------------------- term in the preamble hereof. "Expiry Date" shall mean the date 364 days from the date hereof ----------- subject to extension pursuant to Section 2.6. "Extension Letter" shall mean a letter from the Borrowers requesting ---------------- an extension of the Expiry Date substantially in the form of Exhibit C hereto. "Federal Funds Rate" shall mean for any day, a fluctuating interest ------------------ rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next 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 for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "Finance Co." shall have the meaning assigned that term in the first ----------- paragraph of this Agreement. "Finance Co. Obligations" shall mean all obligations of Finance Co. ----------------------- under this Agreement to pay (i) the principal of and interest on the Loans and LC Disbursements when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other payment obligations of Finance Co. hereunder. "First Mortgage Bonds" shall mean the first mortgage bonds issued by -------------------- PPL pursuant to its Mortgage and Deed of Trust dated as of October 1, 1945, as supplemented. "GAAP" shall mean United States generally accepted accounting ---- principles applied on a consistent basis. "Guarantee" of or by any person shall mean any obligation, contingent --------- or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any --------------- manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the -------- ------- term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hybrid Preferred Securities of PPL" means (1) the preferred ---------------------------------- securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of PPL or a Subsidiary of PPL, as the case may be, and (B) payments made from time to time on the subordinated debt. "Hybrid Preferred Securities of Parent" means (1) the preferred ------------------------------------- securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by Parent or PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of Parent or a Subsidiary of Parent, as the case may be, and (B) payments made from time to time on the subordinated debt. "Indebtedness" of any person shall mean, without duplication, (a) all ------------ obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding any trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are without recourse to such person, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Interest Period" shall mean (a) as to any Eurodollar Loan, the --------------- period commencing on the date of such Loan or on the last day of the most recent Interest Period applicable thereto and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the applicable Borrower may elect in a Notice of Borrowing or Notice of Conversion and (b) as to any Base Rate Loan, the period commencing on the date of such Loan and ending on the date 90 days thereafter or, if earlier, on the Expiry Date or the date of prepayment of such Loan. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period applicable to a -------- Borrowing of Eurodollar Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day. "Interest Rate Protection Agreement" shall mean any agreement ---------------------------------- providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "L/C Commitment" shall mean the commitment of the Fronting Bank to -------------- issue Letters of Credit pursuant to (S) 1A. "L/C Disbursement" shall mean a payment or disbursement made by the ---------------- Fronting Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate ------------ undrawn amount of all outstanding Letters of Credit at such time plus (b) the ---- aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Bank at any time shall mean its Applicable Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term --------------------- in (S) 1.6(b). "Letter of Credit" shall mean any letter of credit issued pursuant to ---------------- (S) 1A. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed ---- of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vender or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall have the meaning assigned that term in (S) 1.1. ---- "Loan Documents" shall have the meaning assigned that term in (S) 8.1. -------------- "Moody's" shall mean Moody's Investors Service, Inc. or any successor ------- thereto. "Non-Recourse Indebtedness of PPL" shall mean (a) indebtedness that is -------------------------------- nonrecourse to PPL or any of its Subsidiaries and (b) any transition bonds issued by PP&L Transition Bond Company LLC, a subsidiary of PPL, or any similar special purpose company organized for the purpose of issuing bonds payable from revenues associated with intangible transition property created under the Pennsylvania Electricity Generation Customer Choice and Competition Act or other assets of PP&L Transition Bond Company LLC or any such other special purpose company, provided that (i) such bonds are nonrecourse to PPL or any of its -------- subsidiaries (other than PP&L Transition Bond Company LLC or any such other special purpose company) and (ii) the aggregate amount of such transition bonds shall not exceed $2,850,000,000. "Non-Recourse Indebtedness of Parent" shall mean (a) indebtedness that ----------------------------------- is nonrecourse to Parent, either Borrower or any of PPL's Subsidiaries and (b) any transition bonds issued by PP&L Transition Bond Company LLC, a subsidiary of PPL, or any similar special purpose company organized for the purpose of issuing bonds payable from revenues associated with intangible transition property created under the Pennsylvania Electricity Generation Customer Choice and Competition Act or other assets of PP&L Transition Bond Company LLC or any such other special purpose company, provided that (i) such bonds are nonrecourse to -------- PPL or any of its subsidiaries (other than PP&L Transition Bond Company LLC or any such other special purpose company) and (ii) the aggregate amount of such transition bonds shall not exceed $2,850,000,000. "Notice of Borrowing" shall have the meaning assigned that term in (S) ------------------- 1.2. "Notice of Conversion" shall have the meaning assigned that term in -------------------- (S) 2.4(a). "Parent" shall have the meaning assigned that term in the first ------ paragraph of this Agreement. "Payment Office" shall mean the office of the Agent located at 301 -------------- South College Street, Charlotte, North Carolina 28288-0735, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Permitted Liens" shall mean (a) Liens for taxes, assessments or --------------- governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which Parent has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the aggregate, are not material to Parent; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in the aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding. "Persons" shall mean and include any individual, firm, corporation, ------- association, trust or other enterprise or any governmental or political subdivision or agency, department or instrument thereof. "PPL" shall have the meaning assigned that term in the first paragraph --- of this Agreement. "Prime Rate" shall mean the rate which First Union National Bank ---------- announces from time to time as its prime lending rate, such Prime Rate to change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. First Union National Bank may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Quoted Rate" shall mean, with respect to any Eurodollar Loan for any ----------- Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 A.M. (London time) 2 Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "Quoted Rate" with respect to such Eurodollar Loan for such ----------- Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Register" shall have the meaning provided in 1.4(b). -------- "Regulation D" shall mean Regulation D of the Board of Governors of ------------ the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements. "Required Banks" shall mean Banks having Loans the outstanding -------------- principal amount of which aggregate (or, if no Loans are outstanding, Banks with Commitments aggregating) at least the majority of the aggregate outstanding principal amount of all Loans (or of the Total Commitment). "SEC" shall have the meaning assigned that term in (S) 5.1A(c). --- "SEC Regulation D" shall mean Regulation D as promulgated under the ---------------- Securities Act of 1933, as amended, as the same may be in effect from time to time." "S&P" shall mean Standard & Poor's Ratings Group or any successor --- thereto. "Subsidiary" shall mean any company, partnership, association or other ---------- business entity in which any Person and its Subsidiaries now have or may hereafter acquire an aggregate of at least 50% of the voting stock or ownership interests. "Taxes" shall have the meaning assigned that term in (S) 3.4. ----- "Total Commitment" shall mean the aggregate of all the Commitments of ---------------- all the Banks. "Type" shall mean any type of Loan, i.e., whether a Loan is a Base ---- ---- Rate Loan or a Eurodollar Loan. "Unaffected Bank" shall have the meaning assigned that term in (S) --------------- 2.5(c). "written" or "in writing" shall mean any form of written communication ------- ---------- or a communication by means of telex, telecopier device, telegraph or cable. 10.2 Accounting Principles. All statements to be prepared and --------------------- determinations to be made under this Agreement, including (without limitation) those pursuant to (S) 5, shall be prepared and made in accordance with generally accepted accounting principles applied on a basis consistent with the accounting principles reflected in the audited financial statements of PPL and Parent for the fiscal year ended December 31, 1999, referred to in (S) 7.4, except for changes in accounting principles consistent with GAAP. 10.3 Exercise of Rights. Neither the failure nor delay on the part ------------------ of any of the Banks or the Fronting Bank to exercise any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Banks would otherwise have. No notice to or demand on PPL, Finance Co. or Parent in any case shall entitle PPL, Finance Co. or Parent, as applicable, to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Banks or the Fronting Bank to any other or further action in any circumstances without notice or demand. 10.4 Amendment and Waiver. Neither this Agreement nor any other Loan -------------------- Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by PPL, Finance Co. and Parent, and the Required Banks, provided that no -------- such change, waiver, discharge or termination shall, without the consent of each Bank directly affected thereby, (i) extend the final scheduled maturity of any Loan (except as provided for in (S)2.6), or reduce the rate or extend the time of payment of interest or Commitment Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this (S) 10.4, (iii) reduce the percentage specified in the definition of Required Banks or (iv) consent to the assignment or transfer by PPL, Finance Co. or Parent of any of its rights and obligations under this Agreement or the release of Parent from its guarantee hereunder; provided further, that no such change, waiver, discharge or ---------------- termination shall (x) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitment of any Bank) or (y) without the consent of the Agent, amend, modify or waive any provision of (S) 8 as such Section applies to such Agent or any other provision as such Section relates to the rights or obligations of such Agent. 10.5 Expenses; Indemnification. (a) The Borrowers agree to pay all ------------------------- reasonable out-of-pocket expenses (i) of the Agent and the Fronting Bank incurred in connection with the preparation, execution, delivery, enforcement and administration (exclusive of any internal overhead expenses) of this Agreement and any and all agreements supplementary hereto and the making and repayment of the Loans, the issuance of the Letters of Credit and the payment of interest, including, without limitation, the reasonable fees and expenses of Cravath, Swaine & Moore, counsel for the Agent and (ii) of the Agent, the Fronting Bank and each Bank incurred in connection with the enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of any counsel for any of the Banks with respect to such enforcement; provided that -------- none of the Borrowers or Parent shall be liable for any fees, charges or disbursements of any counsel for the Banks or the Agent other than Cravath, Swaine & Moore associated with the preparation, execution and delivery of this Agreement and the closing documentation contemplated hereby. (b) The Borrowers further agree to pay, and to save the Agent, the Fronting Bank and the Banks harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with the Borrowers' execution or delivery of this Agreement, their borrowings hereunder or Letters of Credit, or the issuance of any notes or of any other instruments or documents provided for herein or delivered or to be delivered by each of them hereunder or in connection herewith. (c) The Borrowers agree to indemnify the Agent, the Fronting Bank and each Bank and each of their respective affiliates, directors, officers and employees (each such person being called an "Indemnitee") 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, the Fronting Bank or any Bank 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, the direct or indirect application or proposed application of the proceeds of any Loan hereunder or the issuance of Letters of Credit; provided that such indemnification shall not -------- extend to disputes solely among the Agent, the Fronting Bank and the Banks; and provided further that such indemnity shall not, as to any Indemnitee, be - -------- ------- available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (d) All obligations provided for in this (S) 10.5 shall survive any termination of this Agreement or the resignation, withdrawal or removal of any Bank. 10.6 Successors and Assigns. (a) This Agreement shall be binding ---------------------- upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that none of PPL, Finance Co. or -------- Parent may assign or transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under (S) 5.2, without the prior written consent of the Banks and provided further that the right of each Bank to transfer, assign or grant - ---------------- participations in its rights and/or obligations hereunder shall be limited as set forth below in this (S) 10.6, provided that nothing in this (S) 10.6 shall -------- prevent or prohibit any Bank from pledging its rights under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrowers shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note evidencing its Commitment or Loans made by the assigning Bank hereunder. (b) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign all or a portion of its ----------- rights and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or any affiliates of any Bank or (y) one or more other Eligible Transferees, provided that (i) any such assignment -------- pursuant to clause (y) above shall be in the aggregate amount of at least $5,000,000, (ii) after giving effect to any such assignment pursuant to clause (x) or (y) above, no Bank shall have a Commitment of less than $5,000,000 unless such Bank's Commitment is reduced to zero pursuant to such assignment, (iii) any assignment pursuant to clause (y) shall require the consent of the Borrowers, which consent shall not be unreasonably withheld, and provided further, that, so ---------------- long as no Loans or interest thereon shall be outstanding and no Default or Event of Default shall have occurred with respect to PPL, Finance Co. or Parent and then be continuing, the Borrowers may at their option terminate the portion of such assigning Bank's Commitment proposed to be assigned pursuant to clause (y) above in lieu of consenting to such assignment, and the Total Commitment shall be reduced in the amount of such termination. Assignments or terminations of all or any portion of any Bank's Commitment pursuant to this clause (b)(A) will only be effective if the Agent shall have received a written notice from the assigning Bank and the assignee, or, in the case of a termination, the Borrowers, and, in the case of an assignment, payment of a nonrefundable assignment fee of $2,500 to the Agent by either the assigning Bank or the assignee. No later than five Business Days after its receipt of any written notice of assignment or termination, the Agent will record such assignment or termination, and the resultant effects thereof on the Commitment of the assigning or terminating Bank and, in the case of an assignment, the assignee, in the Register, at which time such assignment or termination shall become effective, provided that the Agent shall not be required to, -------- and shall not, so record any assignment or termination in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with (S) 10.4 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment or termination pursuant to this clause (b)(A), (x) the assignee, in the case of an assignment, will become a "Bank" for all purposes of this Agreement and the other Loan Documents with a Commitment as so recorded by the Agent in the Register, and to the extent of such assignment or termination, the assigning or terminating Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned or terminated. (B) Participations. Each Bank may transfer, grant or assign -------------- participations in all or any part of such Bank's interests and obligations hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall remain a "Bank" for all -------- purposes of this Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have any rights under the Agreement or other Loan Document or any rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating, (y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or Commitment Fee or other fees applicable to any of the Loans or Commitments in which such participant is participating or postpone the payment of any thereof or reduce the principal amount of any Loan (except to the extent repaid in cash) or (z) release Parent from its obligations as a guarantor hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Bank in respect of such participation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by each of the Borrowers hereunder shall be determined as if such Bank had not sold such participation, provided that such participant shall be entitled -------- to receive additional amounts under (S)(S) 1.8, 2.5 and 3.4 on the same basis as if it were a Bank but in no case shall be entitled to any amount greater than would have been payable had the Bank not sold such participations. (c) Each Bank hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement represent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that, subject to the preceding clauses (a) and (b), the disposition of - -------- any promissory notes or other evidences of or interests in Loans held by such Bank shall at all times be within its exclusive control. 10.7 Notices, Requests, Demands. All notices, requests, demands or -------------------------- other communications to or upon the respective parties hereto shall be deemed to have been given or made (i) in the case of notice by mail, when actually received, and (ii) in the case of telecopier notice sent over a telecopier machine owned or operated by a party hereto, when sent, in each case addressed to the party or parties to which such notice is given at their respective addresses shown below their signatures hereto or at such other address as such party may hereafter specify in writing to the others. No other method of giving notice is hereby precluded. 10.8 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties contained herein or otherwise made in writing by PPL, Finance Co. or Parent in connection herewith shall survive the execution and delivery of this Agreement. 10.9 Governing Law. This Agreement and the rights and obligations of ------------- the parties under this Agreement (other than as relates to Letters of Credit) shall be governed by and construed and interpreted in accordance with the laws of the State of New York. Each Letter of Credit shall be governed by, and construed and interpreted in accordance with the laws or rules designated in such Letter of Credit, or if no such laws or rules are designated, the Uniform Customs and Practice for Documentary Credits (1993 revision), International Chamber of Commerce, publication no. 500 (the "Uniform Customs") and, as to matters not governed by the Uniform Customs, the laws of the State of New York. 10.10 Counterparts. This Agreement may be executed in any number of ------------ copies, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with each Borrower, Parent and the Agent. 10.11 Terms Generally. All references herein to the "date hereof", --------------- the "date of this Agreement", or words of similar import, shall be construed as referring to June 28, 2000, provided that all obligations of the Borrower -------- accruing under the Existing Credit Agreement shall continue to be obligations of the Borrower under this Agreement. 10.12 Effectiveness. This Agreement shall become effective on the ------------- Closing Date. 10.13 Transfer of Office. (a) Each Bank may transfer and carry its ------------------ Loans at, to or for the account of any branch office, subsidiary or affiliate of such Bank; provided that such Bank shall continue to bear all of its obligations -------- under this Agreement; and provided further that the Borrowers shall not be -------- ------- responsible for costs arising under (S) 1.8, 2.5 or 3.4 resulting from any such transfer to the extent not otherwise applicable to such Bank prior to such transfer. (b) Upon a Bank becoming aware of any event which will entitle it to any additional amount pursuant to (S) 2.5(a) or (S) 3.4, such Bank shall take all reasonable steps (including but not limited to making, maintaining or funding the affected Loan through another office of such Bank) to avoid or reduce the additional amount payable by the applicable Borrower; provided that, such steps will not result in any additional costs, liabilities or expenses (not reimbursable by the applicable Borrower) to such Bank and are not otherwise inconsistent with the interests of such Bank determined in good faith. 10.14 Proration of Payments. The Banks agree among themselves that, --------------------- with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Loans, equitable adjustment will be made so that, in effect, all such amounts will be shared ratably among the Banks on the basis of the amounts then owed each of them in respect of such obligation, whether received by voluntary payment, by realization upon security, by the exercise of any right of set-off or bankers' lien, by counterclaim or cross action, under or pursuant to this Agreement or otherwise. Each of the Banks agrees that if it should receive any payment on its Loans of a sum or sums in excess of its pro rata portion (other than as expressly contemplated by (S) --- ---- 2.6(ii)), then the Bank receiving such excess payment shall purchase for cash from the other Banks an interest in the Loans of such Banks in such amount as shall result in a ratable participation by each of the Banks in the aggregate unpaid amount of all outstanding Loans then held by all of the Banks. If all or any portion of such excess payment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrowers agree that any Bank so purchasing a participation from another Bank pursuant to this (S) 10.13 may exercise all its rights with respect to such participation as fully as if such Bank were the direct creditor of the Borrowers in the amount of such participation. 10.15 Jurisdiction; Consent to Service of Process. (a) Each of PPL, -------------------------------------------- Finance Co. and Parent hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Agent, the Fronting Bank or any Bank may otherwise have to bring any action or proceeding relating to this Agreement against any of PPL, Finance Co., Parent or its properties in the courts of any jurisdiction. (b) Each of PPL, Finance Co. and Parent hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 10.16 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE --------------------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 10.17 Headings Descriptive. The headings of the various provisions -------------------- of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 10.18 Waiver of Notice. The Banks who are parties to the Existing ---------------- Credit Agreement hereby waive any prior notice of termination of their commitments under such facility. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PPL ELECTRIC UTILITIES CORPORATION, By_______________________________________ Name: Title: PPL CAPITAL FUNDING, INC., By_______________________________________ Name: Title: PPL CORPORATION, By_______________________________________ Name: Title: FIRST UNION NATIONAL BANK, Individually and as Agent and Fronting Bank By_______________________________________ Name: Title: THE CHASE MANHATTAN BANK, Individually and as Syndication Agent By___________________________________ Name: Title: CITIBANK, N.A., Individually and as Documentation Agent By_____________________________________ Name: Title: THE BANK OF NEW YORK, By___________________________________ Name: Title: THE BANK OF NOVA SCOTIA, By___________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, By___________________________________ Name: Title: By___________________________________ Name: Title: BANK ONE, N.A., By___________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, By___________________________________ Name: Title: MELLON BANK, N.A., By___________________________________ Name: Title: BANK OF AMERICA, N.A., By___________________________________ Name: Title: PNC BANK, N.A., By___________________________________ Name: Title: TORONTO DOMINION (TEXAS),INC., By___________________________________ Name: Title: Bank Address Schedule ---------------------
- -------------------------------------------------------------------------------------------------- Name of Bank and Address Phone Number(s) Fax Number(s) - -------------------------------------------------------------------------------------------------- First Union National Bank Attn: Michael J. Kolosowsky (704) 383-8225 (704) 383-7611 301 South College Street TW-10 Charlotte, NC 28288-0735 - -------------------------------------------------------------------------------------------------- The Chase Manhattan Bank Attn: Jaimin Patel (212) 270-1354 (212) 270-3089 270 Park Avenue, 7th Floor New York, NY 10017 - -------------------------------------------------------------------------------------------------- The Bank of New York Attn: John Watt (212) 635-7533 (212) 635-7552 One Wall Street, 19th Floor New York, NY 10286 - -------------------------------------------------------------------------------------------------- The Bank of Nova Scotia Attn: Philip Adsetts (212) 225-5010 (212) 225-5090 Melanie Brensinger (212) 225-5048 One Liberty Plaza 26th Floor New York, NY 10006 - -------------------------------------------------------------------------------------------------- Citibank, N.A. Attn: Robert J. Harrity, Jr. (212) 559-6482 (212)793-6130 399 Park Avenue 4th Floor/Zone 20 New York, NY 10043 - -------------------------------------------------------------------------------------------------- Credit Suisse First Boston Attn: David Koczan (212) 325-9096 (212) 325-8326 James Moran (212) 325-9176 11 Madison Avenue 20th Floor New York, NY 10010 - -------------------------------------------------------------------------------------------------- Bank One, N.A. Attn: Kenneth Bauer Madeleine Pember (312) 732-6282 (312) 732-3055 One First National Plaza (312) 732-9727 Suite 0360 Chicago, IL 60670 - -------------------------------------------------------------------------------------------------- Morgan Guaranty Trust Company Attn: Robert Bottamedi (212) 648-1349 (212) 648-5018 Morgan Guaranty Trust Company of New York 60 Wall Street - --------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------- Name of Bank and Address Phone Number(s) Fax Number(s) - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- New York, NY 10260 - -------------------------------------------------------------------------------------------------- Mellon Bank, N.A. Attn: Mark Rogers (412) 234-1888 (412) 236-1840 1 Mellon Bank Center Suite 4425 Pittsburgh, PA 15258-0001 - -------------------------------------------------------------------------------------------------- Bank of America, N.A. Attn: Paula Kramp (301) 571-0713 (301) 571-0719 Carim Khouzami (301) 571-0703 Lawrence Saunders (301) 571-0704 6610 Rockledge Drive, 6th Fl. Bethesda, MD 20817 - -------------------------------------------------------------------------------------------------- PNC Bank, N.A. Brian Begg (412) 762-2540 (412) 762-2571 Christopher Moravec One PNC Plaza 249 Fifth Avenue PI-POPP-21-1 Pittsburgh, PA 15222-2707 Robert Mills (570) 831-2833 (570) 821-3375 11 West Market Street, 3rd Fl. Wilkes Barre, PA 38701 - -------------------------------------------------------------------------------------------------- Toronto Dominion (Texas), Inc. Attn: Frank Delaney (212) 827-7771 (212) 827-7244 31 West 52nd Street New York, NY 10019-6101 - --------------------------------------------------------------------------------------------------
SCHEDULE I
BANK COMMITMENT - ---- ---------- FIRST UNION NATIONAL BANK........................................... $100,000,000 THE CHASE MANHATTAN BANK............................................ $ 90,000,000 CITIBANK, N.A....................................................... $100,000,000 MELLON BANK, N.A.................................................... $ 70,000,000 BANK ONE, N.A....................................................... $ 70,000,000 BANK OF AMERICA, N.A................................................ $ 70,000,000 THE BANK OF NEW YORK................................................ $ 50,000,000 TORONTO DOMINION (TEXAS), INC....................................... $ 50,000,000 THE BANK OF NOVA SCOTIA............................................. $ 50,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK........................... $ 40,000,000 CREDIT SUISSE FIRST BOSTON.......................................... $ 35,000,000 PNC BANK, NATIONAL ASSOCIATION...................................... $ 25,000,000 TOTAL COMMITMENT.................................... $750,000,000
EXHIBIT C [Form of Extension Letter] [Date]/1/ First Union National Bank 301 South College Street Charlotte, NC 28288-0735 Attention: First Union National Bank, as Agent and as Fronting Bank, and the Banks party to the Credit Agreement Re: Extension of Expiry Date Ladies and Gentlemen: Reference is hereby made to that certain Amended and Restated 364-Day Revolving Credit Agreement dated as of June [ ], 2000, (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among PPL Electric Utilities Corporation ("PPL"), PPL Capital Funding, Inc. ("Finance Co.") and PPL Corporation ("Parent"), the banks party thereto (the "Banks"), First Union National Bank, as fronting bank and as administrative agent for the Banks, The Chase Manhattan Bank, as syndication agent and Citibank, N.A., as documentation agent. Terms used and not defined herein shall have the meaning assigned to such terms in the Credit Agreement. 1. Prior to giving effect to the extension referred to below, the Expiry Date is __________ (the "Current Expiry Date"). 2. PPL and Finance Co. hereby request that the Expiry Date be extended to _________./2/ ________________ /1/ This Letter shall be delivered to the Agent not less than 30 and not more than 45 days prior to the Current Expiry Date. /2/ Such date shall be 364 days after the Current Expiry Date. EXHIBIT C-2 3. Pursuant to Section 2.6 of the Credit Agreement, such extension of the Current Expiry Date shall become effective on the 20th day prior to the Current Expiry Date if (and only if) Banks holding Commitments that aggregate at least 51% of the Total Commitment on such date shall have agreed to such extension as evidenced by their signatures below. This letter may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one instrument. The delivery by telecopy of an executed counterpart hereof shall be effective as delivery of an original manually executed counterpart. Very truly yours, PPL Electric Utilities PPL Capital Funding, Inc., Corporation, By: By: ______________________ ______________________ ______________________ ______________________ Name: Name: Title: Title: EXHIBIT C-3 PPL Corporation, By: ______________________ ______________________ Name: Title: Acknowledged and agreed to as of the date noted above: FIRST UNION NATIONAL BANK, individually and as [BANK] Agent, Collateral Agent and Fronting Bank, By: By: ______________________ ______________________ ______________________ ______________________ Name: Name: Title: Title: Exhibit D-1 PPL COMPLIANCE CERTIFICATE PPL ELECTRIC UTILITIES CORPORATION ________ (date) The undersigned certifies, as of [ ], that the following information concerning PPL Electric Utilities Corporation, a Pennsylvania Corporation ("PPL") is true and correct: A. Consolidated Indebtedness of PPL: __________ B. Consolidated Capitalization of PPL: __________ C. Consolidated Indebtedness of PPL to Consolidated Capitalization of PPL (A divided by B): _________*** PPL ELECTRIC UTILITIES CORPORATION, by ___________________________________ Name: Title: ________________ *** If such number is greater than .70, then a Default exists. Exhibit D-2 PARENT COMPLIANCE CERTIFICATE PPL CORPORATION ________ (date) The undersigned certifies, as of [ ], that the following information concerning PPL Corporation, a Pennsylvania Corporation ("Parent") is true and correct: A. Consolidated Indebtedness of Parent: __________ B. Consolidated Capitalization of Parent: __________ C. Consolidated Indebtedness of Parent to Consolidated Capitalization of Parent (A divided by B): _________***** PPL CORPORATION, by ___________________________ Name: Title: _______________________________ *** If such number is greater than .70, then a Default exists. EX-12.A 3 0003.txt COMPUTATION OF RATION OF EARNINGS TO FIXED CHARGES Exhibit 12(a) PPL CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
12 Months Ended 12 Months Ended September 30, December 31, ------------- --------------------------------------------------- 2000 1999 (c) 1998 (c) 1997 (c) 1996 (c) ------------- --------- --------- --------- --------- Fixed charges, as defined: Interest on long-term debt............................. $ 299 $ 233 $ 203 $ 196 $ 207 Interest on short-term debt and other interest......... 57 47 33 26 17 Amortization of debt discount, expense and premium - net................................................ 5 4 2 2 2 Interest on capital lease obligations Charged to expense.................................. 6 9 8 9 13 Capitalized......................................... 1 2 2 2 Estimated interest component of operating rentals...... 23 20 18 15 8 ------------- --------- --------- --------- --------- Total fixed charges.......................... $ 390 $ 314 $ 266 $ 250 $ 249 ============= ========= ========= ========= ========= Earnings, as defined: Net income (a)......................................... $ 509 $ 478 $ 379 $ 296 $ 329 Preferred Stock Dividend Requirements.................. 26 26 25 24 28 Less undistributed income of equity method investments.......................................... 62 56 3 (25) 8 ------------- --------- --------- --------- --------- 473 448 401 345 349 Add (Deduct): Income taxes........................................... 296 174 259 238 253 Amortization of capitalized interest on capital leases............................................... 2 2 2 2 4 Total fixed charges as above (excluding capitalized interest on capital lease obligations)............... 390 313 264 248 247 ------------- --------- --------- --------- --------- Total earnings............................... $ 1,161 $ 937 $ 926 $ 833 $ 853 ============= ========= ========= ========= ========= Ratio of earnings to fixed charges (b) (c)................ 2.98 2.98 3.48 3.33 3.43 ============= ========= ========= ========= =========
(a) 2000, 1999 and 1998 net income excluding extraordinary items. (b) Based on earnings excluding one-time adjustments, the ratio of earnings to fixed charges are: September 2000, 2.65; 1999, 2.68; 1998, 3.10; and 1997, 3.51 (c) Ratio of earnings to fixed charges for years 1999 and prior were recalculated to give proper effect of undistributed earnings of equity method investments. EX-12.B 4 0004.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12(b) PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
12 Months Ended 12 Months Ended September 30, December 31, ------------- --------------------------------------------------- 2000 1999 (c) 1998 (c) 1997 (c) 1996 (c) ------------- --------- --------- --------- --------- Fixed charges, as defined: Interest on long-term debt............................. $ 229 $ 205 $ 188 $ 195 $ 207 Interest on short-term debt and other interest......... 16 12 14 17 11 Amortization of debt discount, expense and premium - net................................................ 4 3 2 2 2 Interest on capital lease obligations Charged to expense.................................. 6 9 8 9 13 Capitalized......................................... 1 2 2 2 Estimated interest component of operating rentals...... 17 19 18 15 8 ------------- --------- --------- --------- --------- Total fixed charges.......................... $ 272 $ 249 $ 232 $ 240 $ 243 ============= ========= ========= ========= ========= Earnings, as defined: Net income (a)......................................... $ 366 $ 444 $ 409 $ 348 $ 357 Less undistributed income of equity method investment.. ------------- --------- --------- --------- --------- 366 444 409 348 357 Add (Deduct): Income taxes........................................... 218 151 273 248 251 Amortization of capitalized interest on capital leases............................................... 2 2 2 2 4 Total fixed charges as above (excluding capitalized interest on capital lease obligations)............... 272 248 230 238 241 ------------- --------- --------- --------- --------- Total earnings............................... $ 858 $ 845 $ 914 $ 836 $ 853 ============= ========= ========= ========= ========= Ratio of earnings to fixed charges (b) (c)................ 3.15 3.39 3.94 3.48 3.51 ============= ========= ========= ========= =========
(a) 2000, 1999 and 1998 net income excluding extraordinary items. (b) Based on earnings excluding one-time adjustments, the ratio of earnings to fixed charges are: September 2000, 2.79; 1999, 3.10; and 1998, 3.53 (c) Ratio of earnings to fixed charges for years 1999 and prior were recalculated to give proper effect of undistributed earnings of equity method investments. EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the statement of operations and changes in member's equity, the statement of cash flows, and the balance sheet for the Form 10-Q dated September 30, 2000, and is qualified in its entirety by reference to such financial statements. 0000922224 PPL CORPORATION 1,000,000 9-MOS DEC-31-1999 SEP-30-2000 PER-BOOK 5,716 1,100 1,742 3,414 0 11,972 2 987 910 1,899 47 50 4,814 33 0 574 417 0 0 0 4,138 11,972 4,168 215 3,294 3,509 659 8 882 274 389 19 370 115 0 529 2.57 2.57 Net of $836 million of treasury stock Includes minority interest of $4 million
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