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ACCESSION NBR:8403270195 DOC ~ DATE: NOTARIZED! NO DOCKETFACIE:50 387 Susquehanna Steam Electric Stationg Unit li Pennsylva 05000387

50 388 Susquehanna Steam Electric Stationi Unit 2i Pennsylva 05000388AUTHeNAME AUTHOR AFFILIATION

CAMPBELLgR<K, Pennsylvania Power 8 Light Co ~

-CURTIS~R,Ki Pennsylvania Power 8 Light Co,AEC IP ~ NAME RECIPIENT AFFILIATION,

DENTONiH ~ Re Office of Nuclear Reactor egu'lationi Director»

SUBJECT; Annual Financial Rept 1983.N/840322 'Itr.DISTRIBUTION CODEe M004S COPIES RECEIVED:LTR g ENCL/ SIZE:;oTITLE: Annual Financial Reports

NOTES: 1cy NMSS/FCAF/PM, LPDR 2cys.1cy NMSS/FCAF/PM'PDR 2cys,

0500038705000388

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TOTAL NUMBER OF COPIES REQUIRED! LTTR 12 ENCL 10

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Contents

HighlightsPresident's LetterYear in ReviewFinancial ReviewSelected Financial and

Operating DataFinancial StatementsNotes to Financial StatementsSupplementary Information on

Changing PricesSummary of Quarterly ResultsCommon Stock and

Dividend DataOfficers and Directors

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CoverA PP&L line truck moves alongInterstate Route 80 near Lock Haven,Pa. at the western border of PP&L'sservice territory-the area is just oneof many examples ofbeautiful CentralEastern Pennsylvania. PP&L's servicearea has itall-good transportation, aconscientious work force, recreationopportunities in abundance, andexcellent educational institutions.With a low-cost and reliable supply ofelectricity, available industrial andcommercial sites, and attractive,agreeable lifestyle opportunities in apleasant blend of urban and ruralareas, Central Eastern Pennsylvaniahas all the qualities for business andpersonal development. You'l findexamples throughout this report ofwhy PPEcL has so much pride in itsservice area. This is a great place tobe!

Service'reaPennsylvania Power &LightCompanyis

based in Allentown. It provides electricservice to more than a million homes andbusinesses throughout a 10,000.square. milearea in 29 counties of Central EasternPennsylvania. Principal citiesin the PP&Lservice area are Allentown, Bethlehem,Harrisburg, Hazleton, Lancaster, Scranton,1Villiamsport and IVilhes-Barre.

Customers (a)

Common Shareowners (a)

Kilowatt-hours of Electric Energy Sales

1983

1,026,144

169,142

1982

1,013,623

169,127

Customers 23.1 Billion 22.3 Billion

Interchange Power 16.4 Billion 6.9 Billion

Kilowatt hours of Electricity Generated .

Operating Revenues

Capital Provided by Investors (a)

UtilityPlant (a)

Net Plant in Service

Construction Work in Progress

Common Stock Data

37.7 Billion 29.6 Billion

$ 1.2 Billion

$5.3 Billion

$ 1.2 Billion

$5.0 Billion

$3.8 Billion $2.1 Billion

$ 1.7 Billion $2.9 Billion

Return on Average Common Equity

Earnings Per Share

Dividends Declared Per Share .

Book Value Per Share (a) ......Times Interest Earned Before Income

Taxes .

12.29%

$3.06

$2.40

$25.12

2.34

13.60%

$3.35

$2.32

$24.71

2.08

(a) At year end.

k

Where the PP&L Income Dollar Went in 1983

3c Earnings Reinvested

14c Net Cost ofEnergy

17c Dividends

Income includes revenues,other income and the allowance

for funds used during construction. A,14C Taxes

19C Interest

14C Employees

7c Depreciation

120 Materials, Services,Rents, etc.

President's Letter

Following a very successful startup testing pro-gram, the first of PP&L's two Susquehanna nucleargenerating units was put into commercial operationon June 8, 1983. This event highlighted a year ofsignificant achievement in several areas, achieve-ments vital to meeting our commitments to customersand shareowners.

The timely completion and the safe and efficientoperation of these new generating units continues tobe the focus of the company's priorities. By the end of1984, when both nuclear units are expected to be incommercial operation, the company willhave met itsconstruction needs for major new generating capacityfor at least the balance of this century. PP&L's excep-tionally favorable capacity outlook, based on a goodmix ofcoal and uranium fuels, further strengthens thecompany's position as a supplier of reliable andcompetitively priced electric energy.

The company's strategy for the balance ofthe '80s isto market the effective use of this strong generatingcapability in a way that willhelp spark renewedeconomic prosperity in central eastern Pennsylvania.

Since the financial health ofthe company is directlylinked to the prosperity of the communities we serve,an economic turnaround in our service area is vital forachieving a reversal of the company's relativelystagnant sales growth of recent years.

PP&L's commitment to superior customer serviceprovides an important foundation for promoting usesof electricity in those many applications where itsvalue to customers far exceeds its cost. Our programsare aimed at achieving an average annual increase inkilowatt-hour sales of about 3 percent over the nextdecade or more.

After rates are increased to recognize the com-mercial operation ofSusquehanna Unit2, requests forfuture base rate increases can be largely or entirelyoffset by revenue from increased customer usage. Asales growth of about 3 percent per year, therefore,supports the financial health of the company in anexpanding and more prosperous service area whilealso reducing the need for future rate increases.

Progress toward completing construction ofSusque-hanna Unit 2 continues to proceed on schedule forcommercial operation in the fourth quarter of 1984.When both units are on line, an average of aboutone-third of our customers'lectricity needs willbesupplied by lower-cost nuclear fuel.

The company's significant progress at Susque-hanna again in 1983 is due to the uncompromisingcommitment to excellence of PP&L people in allaspects of our nuclear operations.

Financing and EarningsAs construction of Susquehanna winds down this

. year, the company's needs for outside financing willcontinue to decrease. After Unit 2 is in commercialoperation, most of the company's future needs fornewfunds should be met by internal cash generation.

And because of the company's relatively smallfuture construction and financing requirements afterboth Susquehanna units are on line, we do not expectto sell any new shares of common stock after 1984.

The company's 1983 earnings of$3.06 per share weredown 29 cents per share from 1982. The main reasonsfor the earnings declinewerethelingeringeffectsoftherecession on our service area economy, an increase inthe number of common shares outstanding and thedisallowance of about $90 million in the company'srequest for higher rates. Future earnings willdependon the outcome of the rate-increase request the com-pany plans to file in the second quarter of 1984 for

SusquehannaSince Susquehanna Unit 1 was placed in com-

mercial operation last June until it was shut down inDecember to permit the tie-in of Unit 2 systems,Unit 1 generated nearly 3.2 billion kilowatt-hours,about 27 percent of the electricity PP&L customersused during that period.

This outstanding record for its first six months ofcommercial operation demonstrates Susquehanna'svalue in serving the energy needs ofour customers. Byoperating at an average of nearly 79 percent of itscapacity, Susquehanna made an essential contribu-tion to PP&L's record 1983 energy savings. Theseenergy savings permitted the company to reduce ourcustomers'nergy charge in January of this year.

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Susquehanna Unit 2 and on achieving higher saleslevels as a result of an improving economy and ourstepped-up marketing efforts.

Benefits of PP&L's Capacity MixAlthough excess generating capacity was the

reason given for over half of the disallowance in thecompany's last base rate filing, the fact remains thatall of our generating capacity is necessary to assurereliable and economic electric service. From the view-point of overall system economies, PP&L has noexcess capacity. Without our existing and plannedcapacity mix, long-term reliability and cost ofservicewould be adversely affected.

It was specifically because of PP&L's favorablecapacity position that the company was able to sell16.4 billion kilowatt-hours to neighboring utilitieslast year, which resulted in benefits for our customersofabout $219 million.These energy savings, by far thelargest in the company's history, were made possible

. by the effective operation of all of our generatingplants.

For example, by using lower-cost nuclear fuel forPP&L service area customers, Susquehanna freesmore of the company's coal-fired generation for sale toneighboring utilities. This, combined with the con-tinued outstanding performance of PP&L's othergenerating units, resulted in achieving the verysignificant levels of energy savings experiencedin 1983.

The benefits derived from PP&L's generatingcapacity are the result of a good mix of low-cost coaland uranium fuels, efficient base-load operation andthe fact that the company's capacity is greater todaythan needed to meet current minimum reliabilityrequirements.

Having both Susquehanna units in service willfurther strengthen those advantages. And by sellingpower to other utilities, the company uses its stronggenerating capacity to keep PP&L's electric ratesbelow the average charged both regionally andnationally. Those power sales also provide a measureof the enormous long-term advantage of the com-pany's capacity mix for meeting the growth andeconomic development objectives of the communitieswe serve.

Managed Load GrowthAnother important objective ofPP&L's strategy for

the '80s is to expand electricity usage without experi-encing corresponding increases in peak load growth.Promoting the wise use ofelectricity to accomplish ourcustomers'bjectives is fullycompatible with manag-ing relatively small increases in peak load growth.

However, moderating the level of load growth thatnormally accompanies increases in kilowatt-hoursales'requires that we offer meaningful economicincentives for customers to shift more oftheir electrici-ty usage to times when system peak demands do not

occur. By using the company's generating capacityin this more efficient manner, additional off-peaksales result in significant savings for customersand shareowners.

PP&L's recently approved residential off-peakelectric rates are an important step in meeting thecompany's objective to increase total kilowatt-hoursales without significantly increasing residentialusage of electricity during on-peak hours. These newrates offer residential customers a wide choice ofoptions and economic incentives to shift more of theirelectric usage to off-peak hours.

Since a basic objective of our marketing strategy isto attract and hold job-producing businesses, thecompany also is actively developing a variety ofeconomic incentive rates for business customers toexpand their operations and usage of electricity.However, because business uses of electricity gener-ally stimulate economic development whether used onor off-peak, load growth considerations for theseapplications are secondary to encouraging the produc-tive business uses of electricity for achieving eco-nomic prosperity in the company's service area.

Susquehanna Unit 2 Rate FilingThe company plans to file for an increase in base

rates in the second quarter of 1984 to recognize thecommercial operation of Susquehanna Unit 2. Thesehigher rates, however, are not expected to becomeeffective until 1985 followingextensive investigationand hearings before the Pennsylvania PUC.

Consistent with our long-term objective to holdincreases in the price ofelectric service at or below therate of inflation, we are considering requesting thatthis rate increase be phased in over more than oneyear to moderate the impact on customers.

Notwithstanding the rapidly rising fuel and capitalcosts experienced over the past decade or so, PP&L'saverage price of electric service is still only slightlyabove the Consumer Price Index as measured from theCPI base year of 1967. Maintaining or improving onthis record is important in achieving our marketingobjectives.

The continued support from you, our shareowners,and the dedication and talent of PP&L's employeesgives us confidence that we willsuccessfully meetthese challenges ahead. We willbe doing all we can tobring jobs and prosperity to central eastern Pennsyl-vania —and vigorous financial health to yourcompany.

Respectfully submitted,

Robert K. CampbellFebruary 29, 1984

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Year. in Review

QyerationsEar'nings for 1983 were $3.06 per

share of common stock, comparedto $3.35 for 1982. Earnings wereadversely affected by higher costs,by a Pennsylvania Public UtilityCommission (PUC) decision that isnot allowing the company to earn areturn on 12.6 percent ofits invest-ment in generating facilities, bythe lingering effects of the reces-sion during early 1983, and by anincrease in the number ofcommonshares outstan'ding. An in-depthanalysis of the year's financialresults begins on page 22.

Dividend IncreasedPP&L's quarterly common stock

dividend was increased 2 cents pershare to 60 cents beginning withthe April 1, 1983 dividend. Thequarterly rate had been 58 centsper share since April 1, 1982.

Revenues and SalesOperating revenues of $ 1.25 bil-

lion were up slightly from $1.22billion a year earlier. Lowerrevenues associated with a de-crease in the net cost of energyessentially offset the effects ofhigher base rates granted by thePUC in August, and the effects ofan overall increase in energy salesfor the year.

Kilowatt-hour sales to PP&L'sresidential customers were up

'lightlyover a year earlier. Afterlower sales in the first six monthsof 1983, reflecting the effects of thebusiness recession, industrial andcommercial electric energy salesshowed strong gains in the sec-ond half of the year with overallincreases of 4.1 percent and 2.9percent, respectively. As a result,total sales to PP&Lcustomers wereup about 2.7 percent over 1982.

Sales to other regional utilities,including other member com-

panies in the Pennsylvania-New Jersey-hfaryland (PJM)Interconnection, increased by9.5 billion kilowatt-hours, or138 percent more than a yearearlier. Total energy generated bythe company was up 28 percent in1983 over 1982.

¹zo Peak Demands RecordedA late-season spell of warm

weather produced a new summer-time peak demand record for bothPP&L customers and customersof the PJM Interconnection.PP&L's peak summer demand of4.03 million kilowatts occurredSept. 6, 1983. The previous recordwas 4.01 million kilowatts setearlier in the season on July 18,1983 which exceeded the old markof 3.95 million kilowatts set inSeptember 1980.

PP&L, unlike most PJM com-panies, is a winter-peakingcompany. The winter peak-userecord is 5.2 million kilowatts, setin January 1982, during severecold weather.

PJM maximum demand reacheda new mark of 34.7 millionkilowatts on Sept. 6 also, up froma 34.4 million kilowatt recordreached in July 1980.

Kutztomn Is Neiv CustomerThe borough of Kutztown, Pa.,

became the 16th PP&L resale cus-tomer on Sept. 11. The BerksCounty municipality had beenpurchasing electricity for its 1,830customers from MetropolitanEdison Co.

In becoming a PP&L resale cus-tomer, Kutztown joined 14 othermunicipalities and one investor-owned utility that purchase bulkpower from PP&L and distribute itthrough their own systems. Kutz-town will increase company salesby about 40 millionkilowatt.hoursa year and add a system demand ofabout 12,000 kilowatts.

Atlantic City Buys PowerDifficulties developed in early

1983 regarding a 1979 contractcalling for Atlantic City ElectricCo. to purchase 125,000 kilowatts,or 6.6 percent, of the capacity andenergy of PP&L's share of theSusquehanna nuclear units until1991.

The agreement was accepted bythe Federal Energy RegulatoryCommission (FERC) which hasjurisdiction in the matter. How-ever, the New Jersey Board ofPublic Utilities had ruled thatAtlantic City would not be allowedto include in its rates any costsrelated to the pact.

In an effort to avoid extendedand costly litigation, PP&L andAtlantic City in June signed anadditional agreement which callsforAtlantic City to purchase about125,000 kilowatts of PP&L's coal-fired capacity from 1991 to the year2000.

The New Jersey board in Octoberreversed its earlier decision andapproved Atlantic City's participa-tion in both contracts. The secondcontract has been submitted to theFERC for approval. Atlantic CityElectric Co. serves nearly 400,000customers in southern New Jerseyand is also a member of the PJMInterconnection.

Construction ExpendituresAs construction of the com-

pany's Susquehanna nuclear plantnear Berwick, Pa., nears comple-tion, capital expenditures aredropping dramatically. In fact,combined budget figures of $474million for 1984 and $214 millionfor 1985 are only slightly morethan the $ 649 million spent forconstruction in 1983 alone.

'P&Lanticipates spendingabout $255 million in 1984 and1985 to complete Susquehanna.Another $ 185 million during thetwo years willgo toward additions,

replacements and improvementsto transmission and distributionfacilities, $23 millionforprojects tominimize the effects of PP&L'soperations on the environment,and $225 millionfor other expendi-tures, including modificationsunder a program to extend the lifeof existing generating units. Addi-tionally, about $ 112 million ofnuclear fuel willbe purchasedduring the two-year period.

PP&L owns 90 percent of the2.l-million-kilowattSusquehannaplant. Allegheny Electric Coopera-tive Inc. of Harrisburg owns a10 percent share. PP&L's share ofthe estimated $4.1 billion totalplant cost willbe about $3.7billion.

Rate ActivitiesThe PUC allowed the company

to increase its electric rates byabout $203 million a year effectiveAug. 22, 1983. An additional$ 17 million a year increase in thestate tax surcharge also went intoeffect at the same time.

The PUC decision came aftermany days of public hearings and

a nine-month~investigation by thecommission of a $315 million rateincrease request made by PP&L onNov. 22, 1982. The company'srequest included about $296 mil-lion in increased rate revenues,and about $ 19 millionforincreasesin the state tax surcharge.

About two-thirds of the com-pany's rate increase request wasrelated to the recognition ofSusquehanna Unit 1's inclusion inthe company's rate base. The otherthird was to reflect increased costsof doing business. While the PUCpermitted Unit 1 to be included inthe rate base, it ruled that 945,000kilowatts (or 12.6 percent ofFP&L's system) is excess generat-ing capacity on which the com-pany should not earn aninvestment return. At the sametime the commission trimmed thecompany's allowed return on com-mon equity to 15.5 percent from the16.3 percent the companyrequeste'd.

The company does not agreewith this ruling. The request filedwas conservative and fullyjusti-fied. The generating capacity

adjustment fails to recognize tHatUnit 1 and all of PP&L's othergenerating facilities are operatedfor the benefit of the

compap'y's'ustomers.

These units are currently provid-ing reliable and economic serviceto the company's ratepayers andare making energy available foreconomic sales to other utilities.Such operation is producing sub-stantial energy cost savings whichbenefit all customers because thesavings flow directly through toratep ayers.

Indeed, at the beginning of 1984,PP&L reduced its Energy CostRate from zero to minus 0.162 centsper kilowatt-hour and customersbegan to see the savings as a credititem on their bills. This was madepossible by the better-than-ex-pected performance of PP&L'sgenerating units, the large volumeof transactions with power sys-tems outside the PJM Interconnec-tion, and the high rates receivedfor sales to the interconnection.

Even after the August rate in.crease, PP&L customers werepaying prices lower than the state

0 The 10,000-square-miles of Central Eastern Pennsylvaniaprovide an agreeable blend of urban and rural areas to fitpractically any life-style. Whether it's the all-Americandream of the single-family home, or an attractive apartmentcomplex, condominium, or a restored townhouse, such as theones shown at the right in restored Old Town Lancaster-you'l find it all in PPAL's service area.

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Whether it's advanced-technology research and de-velopment, the assembly oftrucks to be used around theworld, the garment industryor any of the diverse com-mercial and industrialconcerns located in CentralEastern Pennsyl vania... theworker is the key. Peopleprovide the vital extra ele-ment and are the state'greatest resource. Theirvaried backgrounds, manywith old-world ties, provide arich heritage of conscienti-ous, dependable employees.

and regional averages. One of the but the effective date of the in-company's long-term objectives is crease would be delayed for 50to keep the price ofelectricity to its days, until March 4, 1984.customers below those averages.

that would moderate the impact ofhigher rates by spreading theincrease over several years.

Wholesale RatesA request to increase rates to the

company's resale customers byabout 20 percent was filed with theFERC on Nov. 14, 1983.

The request affects only the 15boroughs and one investor-ownedutility that buy power from PP&Lfor resale to their customers.

The increase would recognizehigher costs experienced by PP&Lsince the previous increase forwholesale customers in July 1982.Ifallowed by the FERC, the newrates would raise PP&L annualrevenues by about $4 million.

On Jan. 6, 1984, PP&L sub-mitted to the FERC, for itsapproval, a settlement agreementbetween the company and itsresale customers. Under the termsof the agreement, the company'srequest would be granted in full,

Phase-In ConceptThe company expects later in

1984 to file a request for higherrates that would recognize com-mercial operation of SusquehannaUnit 2. The unit is expected to gointo service during the fourthquarter of 1984 and the new rateswould be requested to becomeeffective shortly thereafter.

PP&L received assurances fromthe PUC in November that thecompany could ask for a possiblephase-in of the rate increase asso-ciated with bringing SusquehannaUnit 2 into base rates, without fearof having the request rejected onprocedural grounds.

Traditionally, new rates go intoeffect immediately after the PUCmakes a final decision, and cus-tomers start paying those higherrates at that time. The company isconsidering a phase-in approach

"Windom"ApprovedThe company again requested

and was granted a "window intime" in which SusquehannaUnit 2 could go into operation with-out affecting the rate-settingprocess.

Under traditional rules, thecompany would have to predictclosely the in-service date ofUnit 2 more than nine months be-fore it became operational. Thiswould have been necessary so costsassociated with the plant could bereflected in base rates at just thetime the unit begins operation.This kind ofprecise foresight is vir-tually impossible with a unit ascomplex as Susquehanna Unit 2.

With the "window" neither thecompany nor its customers arepenalized ifthe plant goes intooperation either earlier or laterthan expected. The window concept

was followed in the rate requestassociated with Unit l. At thestate consumer advocate's request,the PUC has agreed to reconsiderits decision to grant the "late" por-tion of the Unit 2 window.

Security SalesDuring 1983, the company raised

$363 million in the capital markets—down from the record $947 mil-lion of securities sold a yearearlier. This reduction reflects thewinding down of constructionactivities at the Susquehannaplant.

The company's dividend rein-vestment plan permits holders ofcommon, preferred and preferencestocks to reinvest their dividendsin common stock at a 5 percent dis-count from the market price, and tomake optional cash payments ofup to $ 15,000 per quarter for stockat the market price. During 1983,

about $82 milL'on was raisedthrough this plan.

During the first four months of1983, the company raised a total of$56 million through three privateplacements of preferred stock atdividend rates that range from 11to 11.25 percent. Additionally,during February the companycompleted a private placement of$50 million of 12'/8 percent firstmortgage bonds.

In May, $50 millionofdepositarypreference shares were offered tothe public by an underwritinggroup at $25 per share to yield11.6 percent. Each depositaryshare represents one-quarter shareof the company's $ 11.60 preferencestock.

In November, the companyoffered $ 125 millionof 13'/e percentfirst mortgage bonds to the publicthrough underwriters at 99.076 per-cent of face value to yield13.25 percent.

Susquehanna Project.'nit

1 at PP&L's Susquehannanuclear plant was put into com-.mercial operation on June 8, f988.PP&L's share of the 1,050,000-kil-owatt unit is 945,000 kilowatts,making it the largest generatingunit in the PP&L system.

Ground was broken at theSusquehanna site in LuzerneCounty in November 1973. Thefirst nuclear fuel arrived at theplant in October 1981, and, afterreceipt of an operating licensefrom the Nuclear Regulatory Com-mission, the first fuel was loadedinto Unit 1's reactor in July 1982.

The unit began test operation inSeptember 1982, and began gen-erating electricity in November1982. Unit 1 achieved 100 percentpower for the firsttime in February1983. During its start-up and test-ing period, it generated more thana billionkilowatt-hours ofelectrici-ty for PP&L's customers.

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PP&L's varied service area provides play and recreationareas for all seasons... for all reasons. Whether it'minter sports in the Pocono mountains, camping along aquiet, lazy stream, golfing on championship coursesor boating or fishing on PP&L's 5,700-acre LakeWallenpaupack —Central Eastern Pennsylvania providestourist attractions and outdoor activities to suitevery interest.

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Thk unit performed extremelywell during its start-up and testingprogram. The 10 most recent boil-ing water reactors placed in servicebefore Susquehanna took an aver-age of 330 days from the start offuel loading to the end of 100 per-cent power testing. SusquehannaUnit 1 took 254 days. This out.standing performance is a tributeboth to those who operate andmaintain the plant and to thosewho built it.

There were a number of othersignificant events involvingSusquehanna during 1983:

~ The company received highmarks for a full-scale drillto testthe emergency preparedness andresponse capabilities for theplant. The March drill, whichincluded the sounding of 110

emergency sirens within a 10-mile radius of the plant, alsoinvolved municipal, county,state, and federal emergencyagencies.

~ The NRC issued PP&L a licensein April for the operation of itslow-level radioactive waste hold-ing facility at the plant. Theshielded concrete warehouse iscapable of holding four

years'orth

of such items as protec-tive clothing and tools that be-come mildly contaminated withradioactivity during the courseof normal plant operation, aswell as material such as resinsfrom filters used in the plant. Thefacility was built because ofserious concern and uncertaintyabout the availability of licensedoutside disposal facilities for thiswaste.

~ In May, Herbert D. Woodeshickwas named special assistant toPresident Robert K. Campbelland is serving as the company'sprimary representative to thosewho live in the area of theSusquehanna plant. Woodeshicksucceeded John H. Saeger, whowas named vice president of thecompany's SusquehannaDivision.

~ Unit 2 moved a step nearer tooperation with completion of afill-and-flush procedure that fillsthe 70-foot.high, 750-ton reactorvessel with water and flushesassociated systems clean. A hy-drostatic test that confirmed thereactor vessel's ability to with-stand operating pressuresfollowed in June.

~ In July, the company and theU.S. Department of Energy

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The diversity of historical,cultural, educational,athletic, and recreationalopportunities in CentralEastern Pennsyluania pro-Uide a pleasant, character-building quality of lifethroughout the area. It's agreat place to raise children.

(DOE) signed a contract for thedisposal of spent nuclear fuelunder provisions of the 1982Nuclear Waste Policy Act. Thecontract provides for disposalservices by the DOE beginningno later than January 1998 andcontinuing for the life of theplant. The material willbeplaced in a repository to be sitedand built by the DOE. The com-pany has the capacity to storespent fuel at the Susquehannaplant site until the scheduledoperation of the first repository.

~ Fuel for Unit2 began arriving atthe plant in August.

Economic Development/Marketing

Largely because of Susque-hanna, and because the company'sother generating plants producelow-cost energy and are runningwell, PP&L is moving into the bestposition ever to provide an abun-dant, reliable and competitivelypriced supply of electric energy tohelp revitalize the economy ofcentral eastern Pennsylvania,

Using the theme, "Electricity-The Right Choice at the RightTime," the company launched amajor economic development/marketing program in 1988 aimedat improving the economic healthof its service territory and increas-ing energy sales that offercustomer benefits.

In economic development, PP&Lis increasing its efforts to attractnew job-producing businesses andindustries to its service area and tohelp existing ones expand. In mar-keting, the company is activelypromoting efficient uses of elec-tricity in selected applications.These would include areas whereelectricity offers greater efficiencyor where there are cost advantagesof using electricity over otherenergy sources.

Managing the growth rate ofpeak loads willalso continue to beemphasized in the marketing effortso the company can get maximumproductivity out of the capitaldollars already invested in gener-ating facilities. This willbe ac-complished by combining load-management programs withefforts to promote efficient uses ofelectricity. Through these market-ing strategies, the company plansto "uncouple" increased sales ofelectricity, to the extent possible,

from growth in the peak demandfor electricity. By doing that—through such incentives as off-peakand interruptible rates —PP&Lcanuse its plants more effectively andthus keep rates lower than theywould be otherwise.

PP&L fully recognizes that itscustomers make an economicchoice each time they flipa switchto operate a work-saving appli-ance, enjoy electronic entertain-ment, or improve productivity inthe workplace. The companyintends to see that this essentialresource is ready and economicallypriced for industrial growth, jobs,economic progress, health care, ed-ucation and personal comfort.

Rate InitiativesThe company proposed rate

schedule and tariffrule changes in

December that it expects willstimulate the servile areaeconomy.

One revision would allow jhdus-trial and commercial customerswho use time-of-day billingto savemoney by structuring their workschedules more effectively duringthe hours when electricity costsless. This would provide an incen-tive to increase production inPP&L's service area, rather thanin another area, as second or thirdshifts are recalled in an expandingeconomy.

On-peak hours, the hours ofhighest overall electric use, noware 7 a.m. to 9 p.m., Mondaysthrough Fridays —or 14 hours eachday. The new proposal would re-duce, for billing purposes, thenumber of daily on-peak hours toeight, and itwould allow customerssome flexibilityin determining

OO 0

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Outstanding educational facilities are another greatstrength of Central Eastern Pennsylvania. There are 88universities and colleges, five community colleges and 24vocational-technical schools in Central EasternPennsylvania. Public and private schools provide the latestin learning technology to help students meet the challengeof a rapidly changing society.

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wheh their particular on-peakhours b'egin.

These proposals, being seen aspositive steps by many businesses,need PUC approval.

Supplemental Energy UsePP&L is working with a number

of developers who are interested inmaking use ofsupplemental energysources, or in generating energy innon-traditional ways.

Musser's DamThe largest customer-owned sup-

plemental energy project to beginoperation in PP&L's service areain 1983 was the Musser's Dam hy-droelectric plant on Middle Creeknear Selinsgrove, Pa., in SnyderCounty.

Musser's Dam, built in the early1900s, was in need of repairs, andthe hydro turbine, which lastturned in 1954, needed to be over-hauled. American Hydro PowerCo. of Villanova, Pa., repaired thedam, rebuilt the original turbine

and installed a second one to in-crease plant efficiency.

The facility is capable of gener-ating 340 kilowatts, enough powerto serve about 35 residential cus-tomers. Itis fullyautomated, usinga programmable controller, andcan be remotely operated by com-puter from American Hydro'sheadquarters.

Output from the facilityis sold toPP&L under the company'sPioneer Rate program which wasestablished in 1981 to encouragethe use of renewable resources.

Eighteen Other ProjectsAdditionally, 18 PP&L cus-

tomers are generating electricityfor their own use or for sale to thePP&L system.

Four biomass-conversion pro-jects —where waste materials suchas manure or wood chips are con-verted into a gas to fuel electricgeneration —are now operating inthe company's Lancaster Division.

A dozen PP&L customers are

operating wind turbines rangingin capacity from 1 kilowatt to 55kilowatts, and two other small-scale hydro projects of 10- and 50-kilowatt capability are inoperation.

PepperidgeFarm GreenhousesAfter successfully testing the

concept ofgrowing premium quali-ty tomatoes in a 1-acre greenhouseusing waste heat from PP&L'snearby Montour plant, PepperidgeFarm Inc. enlarged the facility to6 acres in 1983.

A 20-inch-diameter undergroundpipeline carries warm water morethan a mile from the coal-firedgenerating plant to the greenhousewhere plastic pipes embedded ina porous concrete floor act as aheat exchanger to warm the green-house floor to about 70 degrees —anideal temperature for growingplants all through the winter.

The tomatoes are grown andharvested year-round using a hy-droponic method, where water and

OOO

Central Eastern Pennsylvania is rich with fine museums,folk festivals, historic and cultural events unique in thecountry—and people that honor their heritage throughcolorful ceremonies and patriotic celebrations.

17

nutrients are circulated to theplant's roots.

Bryfogle's floral greenhouse,which was the initial project builton the site, also expanded its opera-tions to 6 acres from the original 3.When combined with the Peppe-ridge Farm facility, the 12-acre siteis the largest waste-heat green-house project in the United States,and the only one that has gonebeyond a demonstration projectinto commercial operation.

Even with the present or plannedfacilities, only about 1 percent ofthe plant's waste heat is utilized.

Manpower PlanningIn 1983, PP&L projected an in-

crease in the number of employeesfrom 8,208 at the end of 1982 to8,644 at the end of 1983. As a resultofa highly successful effort to limitthe increase in manpower, PP&Lhad 8,160 employees at the end of

1983. Having fewer employees willstabilize wage and benefit costs.

Included in the manpower plan-ning strategy was a voluntaryearly retirement incentive pro-gram. There were 365 people eligi-ble. Of those, 251 or 69 percentelected to retire.

The key to the program has beenlimitingthe employmentofreplace-ments. Astrong effort has beenmade to realign functions and re-sponsibilities with the aim ofulti-mately reducing the number ofemployees.

Appointment of a manpowerbroker and policies to secure otherpositions for displaced employeesare among the programs under wayto make the most effective use ofthe company's human resources.

Management ChangesHarley L. Collins, senior vice

president-System Power &En-

gineering, and a member ofthe'ompany'scorpora5e management

committee, retired at the end of1983.

Collins had been with the com-pany since 1949 and worked invarious engineering and systemoperating functions. In 1966 hebecame the company's representa-tive on the management committeeoverseeing the operation of thePJM Interconnection. In 1978 hewas named to direct the depart-ment responsible for operatingPP&L's generating stations andtransmission facilities, and thecompany's engineering and con-struction activities.

John H. Saeger was promoted tovice president of the company'sSusquehanna Division on Aug. 1,1983. Saeger joined PP&L as anengineer in 1960. He advancedthrough several engineering posi-tions before being named managerof Bulk Power Engineering in1978. In 1981, he became special

Skilled craftsmen abound inCentral Eastern Pennsyl-vania —people who takepridein doing the bestjob,inwhatever they build. Restor-ation of the proud old Lacka-manna train station inScranton (far right) by theHilton hotel chain demon-strates faith in the economicweIL-being and promisingfuture of urban areas withinPP&L's service area.

18

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With good transportation —good workers —availableindustrial and commercial sites —and an attractive blend ofcity and country, and withan electric utilityoffering reliable,abundant electric energy at highly competitive rates,PP&L's service areais clearly poised foreconomicprosperityin theyears to come. This truly is a great place to be. And forthose not already located in Central Eastern Pennsylvania,PP&L extends an invitation—we wish you were here!

assistant to the president and thecompany's represen'tative to thoseliving in the area of the Susque-hanna plant.

Saeger succeeded Charles E.Fuqua, who retired Aug. 1, 1988.Fuqua began his utilitycareer in1947 with a predecessor company,the Scranton Electric Co. ScrantonElectric merged with PAL in 1956and Fuqua was named assistant tothe Scranton Districtmanager. Hewas transferred to Allentown in1958 as staff engineer for the com-pany's vice president-Operations.

In 1962, he was promoted toSusquehanna Division superin-

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tehdhnt and three years later, todivisiori manager and vicepresident.

William F. Hecht, manager-System Planning, was appointedvice president System Power onSept. 1, 1983. He is responsible forthe System Planning, SystemOperations, Power Production andFossil Fuels departments.

Hecht joined PP&L in 1964 andworked in various engineeringfunctions before becomingmanager-Distribution Planning in1975. A year later he was namedexecutive director of the CorporateEnergy Planning Council and in

1978 he became manager ofSystem Planning.

Donald J. Trego retired as thecompany's assistant treasurer andmanager-Taxes on July 1 after 28years with PP&L. He joined thecompany as assistant to the comp-troller. He was promoted tomanager-Taxes and Research in1958 and to his most recent posi-tion in 1966.

Board of DirectorsElizabeth E. Bailey, dean of the

Graduate School of IndustrialAdministration at Carnegie-

Mellon University, Pittsburgh,Pa., was elected to the board ofdirectors on June 22, 1983.

Dr. Bailey joined Carnegie-Mellon in May 1983 after servingsince 1977 on the CivilAeronauticsBoard in Washington, D.C., mostrecently as vice chairman. Prior tothat, she was supervisor of theEconomic Analysis Group andresearch head of the EconomicsResearch Department at BellLaboratories at Holmdel, N.J.

She is the author of two eco-nomics texts and numerouseconomics articles in various edu-cational and trade publications.

~ I

4

Review ofthe Company's Financial Condition and Results ofOperations

This review provides a discussion ofthe Company'sfinancial condition and results ofoperation. Addition-al information on these matters is set forth in the finan-cial statements, schedules and notes on pages 30-42and the selected financial and operating data on pages28 and 29.

Results of OperationsEarnings per share of common stock were $3.06 in

1983, $3.35 in 1982 and $3.17 in 1981(excluding in 1981$0.23 applicable to a nonrecurring credit).

The decline in earnings per share in 1983 from 1982was due primarily to: (i) the Pennsylvania PublicUtility Commission's (PUC) August 1983 rate deci-sion which disallowed a return on 12.6% of the Com-pany's investment in generating facilities (see "1983Rate Decision" ), (ii) higher operating costs (exclusiveofthe decrease in the net cost ofenergy),(iii) theimpactof the recession early in 1983 and (iv) a 9% increase inthe average number of common shares outstanding.The higher per share earnings in 1982 over 1981 re-flects additional revenues from a $73 millionincreasein base rates which became effective January 1, 1982.

1983 Rate DecisionIn August 1983, the PUC issued a final order on the

Company's request to increase rates to reflect the ef-fect of placing Susquehanna Unit 1 in commercialoperation and the recovery of other increased costs.The PUC granted the Company an increase in baserate revenues of approximately $203 million—some

$90 million less than the amount requested.The additional revenues granted will improve the

Company's cash flowand overall financial condition,and willincrease the amount ofmortgage bonds issu-able under the earnings coverage test provision ofthemortgage indenture. The return allowed on the Sus-quehanna Unit 1 plant investment included in ratebase replaces the previously-recorded non-cash allow-ance for funds used during construction. Costs such asemployee wages, materials and supplies and outsideskilled labor incurred to operate and maintain theunit are being recovered currently in electric rates.

The rate decision, however, was not wholly favor-able. The PUC did not permit the Company to earn areturn on 12.6% of its net investment in total generat-ing facilities. The PUC decided that 945,000 kilowatts(12.6%) of the Company's total generating capacitywas excess and this reduced the amount of revenuesrequested by about $59 million. The impact of thischange will be reflected as lower earnings availablefor common shareowners.

1984 Rate EilingPlannedThe Company expects to file in the second quarter

of 1984 for increased rates to reflect the effect ofplac-ing Susquehanna Unit2 in service and to recover oth-er increased costs of providing electric service. TheCompany is considering requesting a phase-in of therate increase over several years in order to moderateits impact on customers. The excess capacity issueraised in the Susquehanna Unit1rate case may also be

Earnings Per ShareI2 Months Ended Each Quarter

Dollars Per Share83.60

Times Interest Charges Earned12 Months Ended Each Quarter

Times Earned (Pre Tax)

3'.60

079 80 81 82 83 79 80 81 82 83

22

addr'essed in the Unit2 proceeding, but the Company isunable to predict what action the PUC willtake withrespect to that issue.

Electric Sales and Operating RevenuesElectric energy sales increased 3.4% in 1983 from

the prior year, reflecting improved economic condi-tions during the last half of 1983 and increased con-tractual sales to other utilities. Energy sales for 1982were down 2.9% from 1981, reflecting the depressedeconomic conditions during 1982. When comparedwith 1982, residential sales for 1983 were up 93 millionkwh or 1.2%, commercial-sales increased 173 millionkwh or 2.9% and industrial sales were higher by 299million kwh or 4.1%%uo.

The changes from the prior year in total operatingrevenues were attributable to the following (millionsof dollars):

Base rate increases went into effect January 1981,January 1982 and August 1983. A decline in the netcost ofenergy, as discussed below, resulted in the low-er revenues applicable to recovery of such costs in1983. Contractual sales to other utilities include theamounts received from Atlantic City Electric Com-pany for the purchase by Atlantic of about 6%%uo of thecapacity and energy ofSusquehanna Unit 1 since theunit began commercial operation in early June 1983.

Sales to ultimate customers accounted for approxi-mately 97% of the Company's revenues from electricsales over the past three years. Such revenues are un-der the jurisdiction of the PUC. The remaining 3% ofrevenues relate to sales to others for resale which areregulated by the Federal Energy Regulatory Commis-sion (FERC) as are interchange power sales, whichare classified as a credit to operating expenses.

ElectricBase rate increases ...Recovery of fuel and

energy costs ........Contractual sales to

other utilities .......~ Change in customer

usage and mix ofcustomers ..........

Other ................Total electric ...

Steam heat ...Total .

14.89.5

30.4

(1.6)

$ 28.8

(8.1) 3.27.5 7.8

87.2 245.8

(0.9) 2.0

$86.3 $247.8

1983 1982 1981

$ 141.1 $81.6 $ 84.6

(151.9) 3.1 142.2

16.9 3.1 8.0

Net Cost ofEnergyThe net cost ofenergy decreased dramatically from

the amount recorded in 1982 due to three major factors.

~ Susquehanna Unit 1 was placed in commercialoperation on June 8, 1983 and generated 3.2 bil-lion kilowatt-hours of electricity from that datethrough the end of the year. The electricity gener-ated by the low-cost nuclear fuel unit was de-livered to customers. This made possible the saleto other utilities of electricity generated from theCompany's coal-fired units which is generallylower priced than other sources of electricity

50

Sources of EnergyBillions of Kwh

Disposition of EnergyBillions of Kwh

50

'0,

40

30~

30

20 20

10 10

'9

80 81 82

C7 Hydro and purchased powerC3 Nuclear generationC3 Oil fired generationM Coal. fired generation

79 80 81 82 83

C3 Company use, unbilled usageand line losses

C3 Interchange power salesC3 Electric energy sales billed

23

available to these utilities.The Company's nuclearunit and coal units ran with minimal problemsthroughout the year.

~ Starting late in 1982 and continuing throughout1983, the Company was able to make favorablypriced power purchases directly from companiesother than those in the FJM Interconnection.Most of this power was sold to other utilities atsome markup.

~ Various outages ofgenerating units ofother utili-ties placed them in the market for more power in1983. In fact, the Company's oil-firedunits, whichhave the highest fuel cost ofany Company units,generated 76% more electricity than in 1982, mostof which was sold to other utilities.

pense incurred to finance construction expendituresand the depreciation for income tax purposes of Sus-quehanna Unit 1 were major factors causing the taxlosses. At December 31, 1983, the Company Pad a$ 157 million state income tax loss carryforward anda $ 116 million federal income tax loss carryforward.

The Company's construction expenditures have en-abled it to qualify for substantial investment taxcredits. At the end of 1983, an estimated $242 mil-lion of investment tax credits was available in excessof the amount used to reduce federal income tax pay-ments. These unused investment tax credits may beused to reduce future federal income tax liabilities.

For additional information concerning incometaxes, see the Schedule ofTaxes on page 31 and Note 4to Financial Statements.

Wages and Benefits, Other Operating Costsand Depreciation

Wages and benefits and other operating costs in-creased in both 1983 and 1982 due to inflation. In 1983,the increase also reflects the costs related to the opera-tion of Susquehanna Unit 1. Increases in deprecia-tion reflect additions to plant in service, includingSusquehanna Unit 1 in 1983. The provision for depre-ciation, as a percent of average depreciable property,declined from 3.3% in 1982 to 2.7% in 1983 due to theuse ofa modified sinking fund method ofdepreciationfor the Susquehanna plant.

Income TaxesIn 1982 and 1983, the Company had losses for in-

come tax purposes. The large amount of interest ex-

Allowance for Funds UsedDuring Construction (AFUDC)

The amount ofAFUDC has increased steadily overthe past several years due primarily to the increasinglevel of construction work in progress related to thetwo Susquehanna units. Construction of the Susque-hanna units accounted for about $662 million of thetotal $ 692 millionofAFUDCrecorded during the threeyears 1981-1983. With the commercial operation ofSusquehanna Unit 1, the Company stopped record-ing AFUDC on its $ 1.8 billion investment in thatfacility. After the completion of Unit 2, scheduled forthe fourth quarter of 1984, the amount of AFUDC re-corded will decrease substantially. See Note 5 to Fi-nancial Statements for additional information con-cerning the AFUDC.

Construction Work in Progressvs. Net Plant in Service

Cost of Fossil Fuel Received ~

At Steam StationsBillions of Dollars

86

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W Construction work in progressC3 Net plant in service

~ After Susquehanna Unit 2 in service

79 80 81 82 83

~sa Cost ofcoal—per tonc=i Cost of residual oil—per barrel

24

Sttsquehanna PlantThe Company's construction program for the past

decade has been dominated by the construction of theSusquehanna nuclear plant. The Susquehanna plantconsists of two nuclear-fueled generating units. Alle-gheny Electric Cooperative, Inc. owns a 10% undi-vided interest in the plant and pays on a current basisits proportionate share of construction and nuclearfuel expenditures a'nd operating expenses. Each Sus-quehanna unit has a net capability of 1,050,000 kilo-watts and the Company's 90% share of each unit is945,000 kilowatts.

Susquehanna Unit 1 was placed in commercial op-eration on June 8, 1983 and Susquehanna Unit 2,which is the only generating facility that the Com-pany has under construction at this time, is scheduledto be placed in commercial operation during the fourthquarter of 1984. The Company currently estimatesthat its 90% share of the in-service cost of the two Sus-quehanna units, excluding nuclear fuel, willbe about$3.7 billion.

Capital Expenditure RequirementsWith completion of the Susquehanna plant, con-

struction expenditures are expected to decline sub-stantially. The schedule below shows actual construc-tion and nuclear fuel expenditures for the years 1981-1983 and current projections for the years 1984-1986.Construction expenditures during the three years1981-1983 totaled $2.0 billion and are expected to beabout $0.9 billion during the three years 1984-1986, adecline of approximately $ 1.1 billion from the priorthree years.

Improved Financial ConditionNot unlike the pattern experienced by other electric

utilities in similar circumstances, the extended con-struction period of the Susquehanna plant—with itsheavy financing demands —has adversely affectedthe Company's financial condition over a period oftime as evidenced by such trends as: a decline in inter-est coverage; an increase in the portion ofnet incomerepresented by the allowance for funds used duringconstruction; and restrictions on financing capabili-ties due to earnings coverage test limitations.

The rate relief granted by the PUC in August 1983reflecting the commercial operation of SusquehannaUnit 1 has helped improve the Company's financialcondition. The Company's times interest chargesearned ratio increased from 2.08 times in 1982 to 2.34times in 1983, the first notable increase in this key fii-nancial indicator in the past five years. Funds fromoperations in 1983, as detailed on page 37, increased$75 million over 1982, and the Company's ability toissue mortgage bonds under the earnings coveragetest of the mortgage indenture has improved sub-stantially from the end of 1982.

At December 31, 1983, the Company would havebeen able to issue approximately $420 million of ad-ditional first mortgage bonds under the mortgage in-denture earnings test.

Ifthe PUC grants adequate rate relief to reflect thenet effect of placing Susquehanna Unit 2 in service,such rate relief, together with that granted in August1983 and the large decline in construction expendi-tures, should result in a substantial improvement inthe Company's financial condition over the nextseveral years.

Construction and Nuclear Fuel Expenditures(Millionsof Dollars)

——--Actunl———1981 1982 1983

———projected ———1984 1985 1986

Construction expenditures (a)Susquehanna plantTransmission nnd distribution

facilitiesEnvironmental .

Other

$269 $ (14)(b) $ —$495 $638 $540

11310

131

25451

$305

81 10410 13

114 ill474 214

66 46

$540 $260

763121

62367

$690

69 6219 432 43

758 64953 77

$811 $726Nuclear fuel requirements (c)

TotalAllowance for funds used during

construction (which is includedin the above amounts) ............... $194 $246 $252 $153 $ (33)(b) $ 13

(a) Construction plans are revised from time to time to reflect changes in conditions. Actual construction costs forprojects mny vary from those projected becnusc ofchanges in plans, cost fluctuntions, environmentnl regulationsnnd other factors.

(b) The Susquehanna station construction expenditures are cstimnted to be $31 million in 1985. Those expendituresnnd AFUDC have been reduced by the estimated tnx reduction applicable to construction interest included in thetnx cnrryforwnrd loss expected to be used in 1985.

(c) Substnntinlly nil nuclear fuel requirements through 1986 are ex pected to be financed through sale nnd leasebackarrangements.

25

FinancingThe financing of its construction program requires

the Company to engage in frequent sales ofsecurities,including debt and preferred, preference and commonstocks. Interim financing is obtained principally frombank borrowings and the sale of commercial papernotes.

Outside financing totaled $2.0 billion during thethree years 1981-1983. In addition to securities sales,the Company sold and leased back $287 million ofnuclear fuel during the two years 1982 and 1983. De-tails of the amount of securities sold and other infor-mation on sources and uses offunds during 1981-1983are set forth in the Statement ofChanges in FinancialPosition on page 37.

The Company presently estimates that outside fi-nancing during the three years 1984-1986 willbe ap-proximately $0.5 billion,or about $ 1.5 billionless thanrequired during the prior three years. Funds fromthese securities sales together with funds generatedfrom operations willbe used to finance constructionexpenditures, repay $ 454 millionof long-term debt ob-ligations and meet $ 137 million of preferred and pref-erence stock sinking fund requirements.

Funds generated from operations are expected toprovide about 60% of total funds requirements in1984-1986 compared with 17% of total funds require-ments generated from operations in 1981-1983.

Tentative Plans for Securities SalesThe Company tentatively plans to issue approxi-

mately $425 million of securities in 1984. This plan

does not contemplate any public sale ofcommon stock. >

Because ofa reduced need for equity capital, the Com-pany intends to modify its dividend reinvestm'entplan by the end of1984 to eliminate the 5% discount andprovide for the common stock to be obtained throughmarket purchases rather than the issuance of newshares. The exact amount, nature and timing of salesof securities in 1984 and subsequent years willbe de-termined in the light of market conditions, the Com-pany's ability to meet legal restrictions on theissuance of certain securities and other factors, in-cluding the granting oftimely and adequateraterelief.

Interest Charges and Preferred/PreferenceStock Dividends

During the 1981-1983 period, the Company's out-standing long-term debt increased $ 576 million andoutstanding preferred and preference stock increased$204 million. The annual interest requirements onlong-term debt increased from $ 191 million at thebeginning of 1981 to $260 million at the end of 1983and the annual dividend requirements on preferredand preference stock increased from $62 million to$89 million during the same time period. This repre-sents a $96 million or 38% increase in the annual costof such securities over the three-year period.

Impacts ofInflationCertain effects of inflation on the operations of the

Company have been estimated on the basis prescribedby the Financial Accounting Standards Board andare set forth on pages 43-45.

,400

Capital RequirementsMillionsof Dollars

31

Sources of CapitalMillionsof Dollars

31,400

1,050 1,050

700 700

350 350

081 82 83 84 85 86

Aceuoj~Projecled ~E3 Susquehanna construction expendituresC3 Other construction and nuclear fuel

expendituresC3 Other (principally retirement of securities)

081 82 83 84 85 86

Aceuuj~Projeceed~Cl Outside financingC3 Other (principally from operations and the

allowance for funds used during construction,less dividends)

Cl Sale of nuclear fuel

26

Management's Report on the Financial Statements

'he management of Pennsylvania Power &LightCompany is responsible for the preparation,integrity and objectivity of the financial statementsand other sections of this annual report. Thefinancial statements have been prepared inconformity with generally accepted accountingprinciples and the Uniform System of Accountsprescribed by the Federal Energy RegulatoryCommission. In preparing the financial statements,management makes informed estimates andjudgments of the expected effects of events andtransactions based upon currently available factsand circumstances.

The Company maintains a system of internalaccounting controls designed to provide reasonable,but not absolute, assurance that assets aresafeguarded and that transactions and events areexecuted in accordance with management'sauthorization and recorded properly to permitpreparation of financial statements in accordancewith generally accepted accounting principles. Theconcept of reasonable assurance recognizes that thecost, of a system of internal accounting controlsshould not exceed the benefits derived and that thereare inherent limitations in the effectiveness of anysystem of internal accounting controls.Fundamental to the control system is the selectionand training of qualified personnel, anorganizational structure that provides appropriatesegregation of duties and the utilization of writtenpolicies and procedures. In addition, the Company

maintains an internal auditing program to evaluatethe adequacy, application and compliance withthe Company's internal accounting controls, policiesand procedures.

Deloitte Haskins & Sells, independent certifiedpublic accountants, is engaged to examine and torender an opinion as to whether the financialstatements, considered in their entirety, presentfairly the Company's financial position, operatingresults and changes in financial position, inconformity with generally accepted accountingprinciples. Their examination is conducted inaccordance with generally accepted auditingstandards and includes such procedures believed bythem to be sufficient to provide reasonable assurancethat the financial statements are not materiallymisleading and do not contain material errors.

The Board of Directors, acting through its AuditCommittee, oversees management's responsibilitiesin the preparation of the financial statements. Inperforming this function, the Audit Committee,which is composed of directors who are notemployees of the Company, meets periodically withmanagement, the internal auditors and the inde-pendent certified public accountants to review thework of each. Deloitte Haskins & Sells and theinternal auditors have free access to the AuditCommittee and to the Board of Directors, withoutmanagement present, to discuss internal accountingcontrol, auditing and financial reporting matters.

Index of Financial DataSelected Financial and Operating DataFinancial Statements

Statement of IncomeSchedule of TaxesBalance SheetSchedule of Capital StockSchedule of Long-Term DebtStatement of Changes in Financial PositionStatement of Earnings ReinvestedNotes to Financial Statements .

Auditors'pinionSupplementary Information on Changing Prices .

Summary of Quarterly Results of OperationsCommon Stock Price and Dividend Data

28

303132343637383843434646

27

Selected Financial and Operating Data

Income Items-thousandsOperating revenuesOperating income .

Allowance for funds used during construction .

Net income (a)Earnings applicable to common stock (a)

Balance Sheet Items —thousands (b)Net utility plant in serviceConstruction work in progress .

Total assets .

Long. term debt .

Preferred and preference stockWith sinking fund requirementsWithout sinking fund requirements .

Common equityShort-term debtTotal capital provided by investors

Financial RatiosReturn on average common equity—% (a) ........Embedded cost rates (b)

Long-term debt —%Preferred and preference stock —%

Times interest earned before income taxes (a) ....Ratio of earnings to fixed charges —total

enterprise basis (a) (c)Depreciation as% ofaverage depreciable property .

Common Stock DataNumber of shares outstanding —thousands

Year-end .

Average .

Earnings per share (a)Dividends declared per share .

Taxability of dividend income —% (d)Book value per share (b)Market price per share (b)Dividend payout rate-% (a) .

Dividend yield—% (d) (e)Price earnings ratio (a) (e)

Fuel Cost DataCost per kwh generated —cents

Coal-fired steam stations .

Nuclear steam station (g) .

Oil-fired steam stationCombustion turbines and diesels (oil) ......

Average .

Cost of fossil fuel received at steam stationsCoal —per tonResidual oil—per bbl.

Employees (b)

1983

$ 1,248,397289,930251,548296,011210,173

$3,847,3011,730,2286,049,1812,387,249

714,830231,375

1,767,949190,000

5,291,403

12.29

10.989.662.34

2.172.7

70,33568,642$ 3.06$ 2.40

0$25.12$ 20'/s

7910A87.48

1.680.665.23

10.212.15

$39.37$29.79

8,160

1982$ 1,219,548

223,083246,423278,886210,572

$2,112,1692,923,8415,530,9392,323,318

621,634231,375

1,643,695160,545

4,980,567

13.60

10.819.412.08

1.923.3

66,46162,809$ 3.35$ 2.32

0$24.71$ 21

7011.95

5.79

1.77

5.6210.742.20

$42.32$30.94

8,208

1981

$ 1,133,278211,050193,861244,077183,182

$2,054,0392,312,2925,037,9862,165,381

544,2312311375

1,435,437175,489

4,551,913

12.74

10.808.931.94

1.783.2

58,44753,912$ 3.17$ 2.24

0. $24.52

$ 17'/a72

13.345.30

1.64

5.7510.512.30

$39.59$33.47

7,999

1980$ 885,451

168,659141,241179,759120,384

$1,954,7621,874,3974,300,0801,811,692

510,800231,375

1,250,71756,324

3,860,908

10.38

10.608.492.10

1.903.2

50,62745,598$ 2.64$ 2.12

0$24.68$ 155/s

8212.016.68

lAO

4.557.891.96

$33.78$26.44

7,702

19gt9

$ 860,498182,823105,205182,198133,532

$ 1,885,9781,473,2203,782,2281,557,158

441,400231,375

1,113,44130,775

3,374,149

12.91

9.028.432.72

2.403.2

43,49740,231$ 3.32$ 2.04

~ 39$25.57$ 17o/4

6210.385.92

1.30

3.204.681.65

$30.70$ 18.81

7,590

(n) 1981 net income nnd earnings applicable to common stock include n nonrecurring credit related to an accounting change, whileindicated financial ratios nnd common stock data for that year are computed excluding the nonrecurring credit from earnings.

(b) Year.end.(c) Fixed charges consist of interest on short. nnd long-term debt, other interest charges nnd the estimated interest component ofrentals.(d) Based on holding one share of common stock for the entire year.(e) Based on average of month-end market prices.(f) The winter peaks shown were renched early in the subsequent year.(g) The Company's first nuclear unit wns placed in commercial operation June 8, 1983.

28

'Sales DataElectric customers (b)Average annual residential kwh use .........Electric energy sales billed—millions of kwh

ResidentialCommercialIndustrial .

OtherTotal sales to customers

Contractual sales to other utilities .........Total electric energy sales billed .........

Sources of energy sold—millions of kwhGenerated

Coal-fired steam stations .

Nuclear steam station (g) .

Oil-fired steam stationCombustion turbines and diesels (oil) ....Hydroelectric stations

Power purchasesInterchange power salesCompany use, unbilled usage and line losses .

Total electric energy sales billed .........

1983

1,026,1449,051

8,1386,1197,623

699

22,579478

23,057

26,8854,5095,581

45700

37,7203,880

(16,405)(2,138)

23,057

1982

1,013,6239,039

8,0455,9467,324

675

21,990307

22,297

25,477293

3,18613

612

29,5811,414

(6,900)(1,798)

22,297

1981

1,006,5709,157

8,0885,8937,968

696

22,645309

22,954

24,841

4,70532

622

30,200744

(6,274)(1,716)

22,954

1980

999,5259,205

8,0565,7437,910

742

22,45142

22,493

26,596

5,69233

533

32,8541,415

(9,798)(1,978)

22,493

1979

987,0059,353

8,0665,5548,135

758

22,51342

22,555

26,487

5,77737

799

33,1002,124

(11,089)(1,580)

22,555

Electric Revenue DataBy class of service —thousands

ResidentialCommercial

~ IndustrialOther energy sales

Total sales to customers .~ Contractual sales to other utilities ...

Total from energy sales billedUnbilled revenues, net ...........Other operating revenues...

Total electric operating revenues

Average price per kwh billed—centsResidentialCommercialIndustrial

Total for ultimate customers .......Total for all customers

529,911386,617367,950

36,367

1,320,84529,402

$ 503,557363,233347,726

35,232

1,249,74812,499

$ 411,668292,984295,006

30,098

1,029,7569,386

$349,714246,024245,513

27,080

868,3311,400

$341,987232,610244,265

26,154

845,0161,510

1,350,247

(119,539)12,972

1,262,247

(61,652)12,708

1,039,142

76,88410,142

869,731

10,595

846,526

9,941

6.516.324.835.915.86

6.266.114.755.745.66

5.094.973.704.594.53

4.344.283.103.903.87

4.244.193.003.793.75

$ 1,243,680 $1,213,303 $ 1,126,168 $880,326 8856,467

Generation DataGenerating capability—thousands of kw (b) .

Winter peak demand-thousands of kw (f)Generation by fuel source —%

CoalNuclear (g)Oil .

Hydroelectric .

Steam station availability—%Coal-firedNuclear (g)Oil-fired .

Steam station utilization-%Coal-firedNuclear (g)Oil-fired .

7,4944,869

71.311.914.9

1.9

78.867.775.8

74.067.538.8

6,5464,489

86.11.0

10.82.1

79.1

80.4

70.2

22.2

6,5465,207

82.2

15.72.1

74.7

73.4

68.4

32.8

6,5464,945

81.0

17.41.6

78.7

79.6

73.0

39.5

6,5464,427

80.0

17.62.4

76.6

80.0

73.1

40.2

29

Statement Of InCOme (Thousands of Dollars)

1983 1982 1981

Operating Revenues (Notes 2 and 3) .

Operating ExpensesNet cost of energy

FuelPower purchasesInterchange power sales

768,583186,955

(740,964)

633,69459,571

(302,149)

684,63628,743

(320,240)

$ 1,248,397 $ 1,219,548 $ 1,133,278

Wages and employee benefits .

Other operating costsDepreciationIncome taxes (Note 4)Taxes, other than incomeDeferred Susquehanna operating costs and

energy savings —net (Note 3)

214,574211,752166,839107,885112,055125,470

19,892

891,116171,182142,78892,22287,489

111,668

398,139148,317129,58785,51359,402

106,270

Operating Income .

Other Income and (Deductions)Allowance for equity funds used during

construction (Note 5)Deferred Susquehanna capital costs (Note 3)Income tax credits (Note 4) .

Other —net

Income Before Interest ChargesInterest Charges

Long-term debt .

Short term debt and otherAllowance for borrowed funds used

during construction

Income Before Nonrecurring Credit .............Nonrecurring Credit Related to Accounting Change,

Net of Income Taxes ($13,236) (Note 2) .............Net Income —Before Dividends on Preferred and

Preference StockDividends on Preferred and Preference StockEarnings Applicable to Common Stock ..........Earnings Per Share of Common Stock (a)

Before Nonrecurring Credit .

Nonrecurring Credit (Note 2)

958,467

289,930

996,465

223,083

131,36229,93521,976(9,518)

173,755

463,685

90,295

77,744(588)

167,451

390,584

258,62929,231

(120,186)

167,674

296,011

239,76928,007

(156,128)

111,648

278,886

296,01185,838

$ 210,173

278,88668,814

$ 210,572

$ 3.06 $ 3.85

922,228

211,050

75,218

65,6122,086

142,916

353,966

210,54930,364

(118,648)

122,270

231,696

12,381

244,07760,895

$ 183,182

$ 3.17.23

Average Number of Shares Outstanding (thousands) .

Dividends Declared Per Share of Common Stock .....

68,642 62,809 58,912

$ 2 40 $ 2.32 $ 2.24

$ 3.06 $ 3.35 $ 3.40

(a) Based on average number of shares outstanding.

See accompanying Schedules and 1Votes to Financial Statements.

30

Schedule Of TaxeS (Thousands of Dollars)

4 ~

Income Tax Expense (Note 4)Included in operating expenses

Provision —FederalState

Deferred-FederalState

Investment tax credit, net—Federal

Included in other income and deductionsProvision (credit)—Federal .

State

Included in nonrecurring creditDeferred —Federal

State

Total income tax expense-FederalState

Detail of deferred taxes in operating expensesTax depreciationTest operation of generating unit ...........

'eferred Susquehanna operating costs andenergy savings —net ......

Unbilled revenues .~ Recoverable fuel and energy costs

State utility realty taxOther

Reconciliation of Federal Income Tax ExpenseIndicated federal income tax on pre-tax income

at statutory tax rate (46%)

Reduction due to:AFUDC, less unused construction interest

deductionTax depreciationTax and pension costDeferred Susquehanna capital costsOther .

Total income tax expense

Effective income tax rate

1983

$ 15,8236,787

22,610

94,689(938)

93,751

(4,306)

$112,055

$ (15,216)(6,760)

$ (21,976)

$ 90,990(911)

$ 90,079

$101,728(10,856)

(11,411)11,266

3,024

$ 93,751

$ 177,601

65,088221

6,31413,7702,129

87,522

$ 90,079

23.3%

1982

$ 55,1099,762

64,871

55,351(591)

54,760

(32,142)

$ 87,489

$ (67,981)(9,763)

$ (77,744)

$ 10,337(592)

$ 9,745

$ 58,024(3,373)

2,213

(2,104)

$ 54,760

3132 770

110,8274,9226,833

443

123,025

$ 9,745

3.4%

1981

$ 54,97118,030

73,001

(22,868)(5,483)

(28,351)

14,752

$ 59,402

$ (52,596)(13,016)

$ (65,612)

$ 10,5462,690

$ 13,236

$ 4,8052,221

$ 7,026

$ 513(248)

1,057(22,483)

(6,269)(921)

$ (28,351)

$ 115,507

89,17610,758

6,061

2,486

108,481

$ 7,026

2.8%

Taxes, Other Than IncomeState gross receipts .

State capital stockState utility realty .

Social security and other

$ 60,11220,07431,80313,481

$125,470

$ 56,51518,24326,59110,319

$ 111,668

$ 46,14915,65034,724

9,747

$ 106,270

See accompanying iVotes to Financial Statements.

Balance Sheet at December 31 (Thousands of Dollars)

Assets

UtilityPlantPlant in service —at original cost

ElectricSteam heat .....................Less accumulated depreciation

Construction work in progress-at costNuclear fuel in process —at cost (Note 8)

1983

$4,761,1518,704

4,769,855922,554

3,847,3011,730,228

10,609

5,588,138

1982

$2,939,2428,593

2,947,835835,666

2,112,1692,923,841

8,5625,044,572

InvestmentsAssociated companies-at equityReceivable from litigation settlementNonutility property and other—at cost or less .

16,61428,500

8,410

53,524

13,51429,500

7,017

50,031

Current AssetsCash .Accounts receivable (less reserve: 1983, $5,020; 1982, $4,732)

CustomersInterchange power salesOther

Unbilled revenuesFuel (coal and oil)-at average cost .

Materials and supplies —at average costOther

6,753

109,93439,510

6,20556,744

127,09021,40015,743

383,379

6,562

85,92439,23322,60382,887

157,08222,43510,256

426,982

Deferred Debits 24,140

$6,049,1819,354

$5,530,939

See accompanying Schedules and ¹tes to Financial Statements.

32

CapitalizationCommon equity

Common stockCapital stock expenseEarnings reinvested .

Liabilities1983

$ 1,223,064(15,973)560,858

1,767,949

1982

$ 1,141,649(14,116)516,162

1,643,695

Preferred and preference stockWith sinking fund requirementsWithout sinking fund requirements

Long-term debt .

714,830231,375

2,307,0735,021,227

621,634231,375

2,264,2384,760,942

Current LiabilitiesLong-term debt due within one yearCommercial paper and other notesAccounts payableTaxes accrued .

Interest accruedDividends payableDeferred income taxesEnergy revenues to be refundedOther

80,176190,00092,56327,06364,57864,42827 77393,39632,815

672,792

59,080160,54583,48728,76257,69555,87516,507

33,125

495,076

Deferred and Other CreditsDeferred investment tax credits .

Deferred income taxesOther

111,038205,916

38,208355,162

110,466123,86240,593

274,921

Commitments and Contingent Liabilities (Notes 8 and 11)

$6,049,181 85,530,939

See accompanying Schedules and Notes to Financial Statements.

33

Schedule of Capital Stock at December 31

SharesAuthorized

SharesOutstanding

1983

Outstanding .Thousands of Dollars

1983 1982Preferred Stock-$ 100 par, cumulative (a)

4'/e%Series .

629,93610,000,000

530,1895,191,766

$ 53,019519,176

$ 53,019470,212

Preference Stock —no par, cumulative (a)

Common Stock-no par (a)Dividend reinvestment installments received

5,000,000

85,000,000

3,740,097

70,334,870

$ 572,195 $ 523,231

$ 374,010 $ 329,778

$ 1,222,393671

$ 1,140,5501,099

$ 1,223,064 $ 1,141,649

Sinking Fund Provisions(c)Shares to bc

Redeemed RedemptionAnnually Period

With Sinking Fund RequirementsSeries Preferred

7A0%7.50%7.75%8.00%8.00%, Second8.25%8.75%9.24%10.75% (e)11.00%, Adjustable (e) (i) ...11.00% (e)11.25% (e)14.00% (e)

Preference$8.625 (e) ..................$ 11.00$ 11.60 (i) ..................$ 13.00$ 13.00, Second (i) ..........$ 15.00 (i) ..................

16,000150,000120,00025,00020,000

100,00030,000(d)30,000(d)53,000(d)30,000

260,00015,000

(g)

1984-20031985

1984-19881984-20021985-19891985-19891985-20041984-20051986-19901989-1993

19881989.1998

(g)

1986-19901984-20001989-20081984-19981989-20081988-2007

102,00025,000(d)25,000(d)12,500(d)25,000(d)25,000(d)

Details of Preferred and Preference Stock (b)Optional

RedemptionPrice Per

Share1983

$104.44112.00103.45112.00112.00112.00115.00115.00115.00125.00125.00125.00124.00

None106.60(h)114.00107.15(h)114.00120.00

320,000150,000600,000475,000100,000500,000600,000648,210265,000150,000260,000150,000340,000

510,000408,200500,000171,897500,000500,000

$ 32,00015,00060,00047,50010,00050,00060,00064,82126,50015,000 ~

26,00015,00034,000

51,00040,82050,00017,18950,00050,000

$ 33,60015,00060,00050,00010,00050,00060(00067,75626,500

34,000

51,00044,088

19,69050,00050,000

Shares OutstandingOutstanding Thousands of Dollars

1983 1983 1982

Without Sinking Fund Requirements4'/Bo Preferred ...............Series Preferred

3.35%4AOo/o4.60%8.60%9.00%

Preference$8.00$8AO$8.70

110.00,

103.50102.00103.00107.00107.00

103.00104.00103.00

530,189

41,783228,'/73

63,000222,370

77,630

350,000400,000400,000

$714,830

$ 53,019

4,17822,878

6,30022 237

7,763

35,00040,00040,000

$231,375

$621,634

$ 53,019

4,17822,878

6,30022 237

7,763

35,00040,00040,000

$231,375

See accovrpanying Notes to Financial Statements.

34

Increases (Decreases) in Capital Stock (shares and amount in thousands)1983 1982

Shares Amount Shares Amount1981

Shares AmountCommon Stock

Public offeringDividend reinvestment planEmployee stock ownership plan ..

Series Preferred Stock (j)7 40%8.00%9.24%%uo

11.00%, Adjustable (f) ............11.00%11.25%14.00%

Preference Stock (j)$9.25$ 11.00$ 11.60$ 13.00$ 13.00, Second$ 15.00

3,874 $81,843

(16) (1,600)(25) (2,500)(29) (2,935)150 15,000260 26,000150 15,000

(33) (3,268)500 50,000(25) (2,500)

(16) (1,600)

(17) (1,667)

340 34,000

(18) (1,771)

(16) (1,559)500 50,000

4,000 $77,1243,971 69,930

43 702

4,000 $65,4403,657 55,989

163 2,676

(16) (1,600)

(56) (5,577)

(40) (4,000)(41) (4,141)

(13) (1,251)

500 50,000

(a) Each share ofpreferred, preference and common stock entitlesthe holder to one vote on any question presented to any share-owners'eeting.

(b) Liquidation prices per share of preferred stock (payable inpreference over the preference stock) and preference stock areas follows (plus in each case any unpaid dividends):

Involuntary VoluntaryClass Liquidation Liquidation

498o Preferred $ 100 $ 100Series Preferred $ 100 Redemption price in effect.Preference $ 100 Redemption pricein effect,

except for the $8.625 Serieswhich is $ 100.

(c) The aggregate amount of sinking fund redemption require-ments through 1988 are (thousands ofdollars): 1984, $22,850;1985, $52,850; 1986, $61,850; 1987, $61,850; 1988, $86,950.

(d) On certain sinking fund redemption dates the Company mayredeem additional shares up to the number of shares of theseseries required to be redeemed annually.

(e) In the event there is a loss of certain federal income taxbenefits to corporate holders of these stocks, the Companywould bc required to make indemnity payments to the ownersupon the sale or redemption of the stocks to provide an agreed

upon effective yield after federal income taxes. The Companyestimates that as of December 31, 1983 it could be required tomake such indemnity payments in the future not in excess of$4.5 million.

(f) Effective April 1, 1988, the dividend rate is subject to a one.time adjustmcnt pursuant to a formula based on the thencurrent prime rate.

(g)Thc 14.00% Prcfcrred Stock has a sinking fund provisionwhich requires redemption of the followingnumber of sharesannually at $ 100 per share: October 1, 1986.1987, 85,000; 1988-1989, 51,000; 1990, 68,000.

(h) The $ 11.00 and $ 13.00 Preference Stocks may not be refundedthrough certain refunding operations prior to July 1, 1985andOctober I, 1984, respectively.

(i) Ownership of the $ 11.60, $ 13.00, Second Series and $15.00Preference Stocks may be evidenced by holding DepositaryPreference Shares, each representing '/~ share of PrcfercnceStock.

(j) Decreases in Preferred and Preference Stocksrepresent:(i) theredemption ofstock pursuant to sinking fund requirements, or(ii) shares reacquired through market purchases which havebeen cancelled. The reacquired and cancelled shares are usedto meet sinking fund requirements.

Sec accompanying Notes to Financial Statements.

35

Schedule of Long-Term Debt at December 31

First Mortgage Bonds (a)3'/s%97/s/o

15%97/s%1ls/~%%uo

15%%uo .'7/s%

3s/s%%uo

15% .

16'/s%14'/4%16'/s%16'/s%16'/2%16'/s%4/s% to 16'/s%4s/s% to 6s/4%7'%%uo to 9%%uo

8'/4% to 9/4%13'/s% to 15/s% .

Pollution control4/s'%%uo to 5/s% Series A77/s% to 8~/s% Series C11'/4% to 11'/s% Series D

MaturityDate (b)

March 1, 1983June 1, 1983

February 1, 1984June 1, 1984

December 15, 1984February 1, 1985

June 1, 1985August 1, 1985

February 1, 1986August 1, 1986

December 12, 1986August 1, 1987

September 1, 1987August 1, 1988

September 1, 19881989-19931994-19981999-20032004-20082009-2013

(c)(c)(c)

OutstThousands1983

$ 25,00033,342

$ 16,66533,32930,00016,66533,32925,00016,67030,90050,00036,00010,40010,10010,400

351,70090,000

345,000555,000325,000

23,50020,00070,000

16,66533,329

~ 30,00016,66533,32925,00016,67030,90050,00036,00010,40010,10010,400

301,70090,000

345,000555,000200,000

25,00020,00070,000

andingof Dollars

1982

Other Long-Term Debt (Note 6)Secured term notes (a)(d)Nuclear fuel trust (d)Miscellaneous promissory notes

Unamortized (discount) and premium —net

Less amount due within one year

March 31, 1991February 1, 1987

1984-1989

2,099,658

300,000

7962,400,454

(13,205)2,387,249

80,176

$2,307,073

1,984,500

300,00050,000

924

2,335,424'12,106)

2,323,31859,080

$2,264,238

(a) Substantially all utility plant is subject to the lien of theCompany's first mortgage and certain utility plant is alsosubject to the lien of a second mortgage.

(b) Aggregate long-term debt maturities through 1988 are(thousands of dollars): 1984, $80,176; 1985, $75,964; 1986,$98,599; 1987, $47,429; 1988, $21,511. Maximum sinkingfund requirements aggregate $32.8 million through 1988 andmay be met with property additions or bonds.

(c) Pollution control bonds mature annually as follows (thou.sands of dollars): (i) Series A on May 1, 1985, $800;1986-2002, $900; 2003, $7,400 (ii) Series C on April 1, 2000,$4,000; 2006-2009, $2,000; 2010, $8,000 (iii) Series D onNovember 1, 2002, $ 15,000; 2012, $55,000.

(d) Variable interest rate.

See accompanying Notes to Financial Statements.

36

Statement of Changes in Financial Position (Thousands of Dollars)

Source of FundsFunds from operations

Net income (1981 includes $ 12,381nonrecurring credit) .

Charges (credits) to income not involvingworking capital

DepreciationNoncurrent deferred income taxes and

investment tax credits —net .................Deferred Susquehanna costs-net .............Allowance for funds used during construction .

Other

Outside financingCommon stockPreferred and preference stockFirst mortgage bondsLong-term bank loans —net increase......Secured term notesNuclear fuel trust notes —net increase ....Short term debt—net increase (decrease)

'orking capital (excluding debt) —decrease (a) .

Sale of nuclear fuel .

1983

$ 296,011

107,885

78,178(10,043)

(251,548)694

221,177

81,415106,000175,000

29,455

391,870

170,76874,319

8 858,134

1982

278,886

92,222

20,404

(246,423)1,208

146,297

147,47584,000

365,674

300,00050,000

(14,944)

932,205

54,862215,897

$1,349,261

1981

$244,077

85,513

7,830

(193,861)(42)

143,517

124,72950,000

179,071175,000

119,165

647,965

$791,482

Application of Funds'

Construction expendituresNuclear fuel expendituresAllowance for funds used during construction .

Securities retiredPreferred and preference stockFirst mortgage bondsLong-term bank loans —net decrease ...Nuclear fuel trust notes-net decrease

Dividends on preferred, preference andcommon stock

Working capital (excluding debt) —increase (a)Other—net

8 648,66177,267

(251,548)

474,380

12,80459,842

50,000

122,646

251,182

9,926

8 858,134

$ 757,87853,299

~(246,428564,754

6,597178,000375,000

559,597

216,601

8,309

$ 1,349,261

$623,59466,704

(193,861)

496,437

16,569500

17,069

183,886112,561(18,471)

$791,482

(a) Changes in components of working capital (excluding debt)CashAccounts receivableUnbilled and refundable revenues, net of deferred taxes .Fuel (coal and oil)Accounts payable and accrued taxes ...................'.Other-net .

Increase (Decrease)

1917,889

(130,805)(29,992)

(7,377)(10,674)

$(170,768)

$ 82760,894

(G3,869)(G,746)

(20,536)(25,432)

S(54,862)

8 (419)(17,363)130,24936,951

(G08)(36,249)

$ 112,561

See accompanying Schedules and ¹tes ta Financial Statements.

37

Statement Of EarningS ReinVeSted (Thousands of Dollars)

1983 1982 1981

Balance, January 1

Add Net Income (1981 includes $ 12,381nonrecurring credit)

DeductCash dividends declared

Preferred stock —at required annual rates ..........Preference stock—at required annual rates .........Common stock —per share: 1983, $2.40; 1982, $2.32;

1981, $2.24Issuance cost ofretired preferred and preference stock ..

Balance, December 31

$516,162

296,011

812,173

47,26838,570

165,344133

251,315

$560,858

$453,885

278,886

732,771

38,73029,584

148,2878

216,609

$516,162

$393,708

244,077

637,785

38,51322,382

122,99114

183,900

$453,885

Notes to Financial Statements

1. Summary of Accounting PoliciesAccounting Records

Accounting records are maintained in accordancewith the Uniform System ofAccounts prescribed bythe Federal Energy Regulatory Commission (FERC)and adopted by the Pennsylvania Public UtilityCommission (PUC).

Associated CompaniesInvestments in unconsolidated subsidiaries (all

wholly owned) and in Safe Harbor Water PowerCorporation (of which the Company owns one-thirdof the outstanding capital stock representing one-half of Safe Harbor's voting securities) are recordedusing the equity method of accounting. Unconsoli-dated subsidiaries operate in the United States andare engaged in coal mining, holding coal reserves,oil pipeline operations and real estate investment.

The Company believes that its financial positionand results of operations are best reflected withoutconsolidation of these subsidiaries since they arenot engaged in the business of generating or distri-buting electricity. All unconsolidated subsidiariesconsidered in the aggregate would not constitute a"significant subsidiary" as that term is defined bythe Securities and Exchange Commission.

UtilityPlant and DepreciationAdditions to utilityplant and replacement ofunits

of property are capitalized at cost. The cost of unitsofproperty retired or replaced is removed from utilityplant accounts and charged to accumulated depreci-ation. Expenditures for maintenance and repairs ofproperty and the cost of replacement of items de-termined to be less than units of property arecharged to operating expenses.

The annual charge for depreciation is computedon a straight-line method for financial reportingpurposes, using rates based on the estimated usefullives of property, with the exception of the Susque-hanna nuclear plant which is depreciated on a modi-fied sinking fund method in accordance with a PUCorder. Provisions for depreciation, as a percent ofav-erage depreciable property, approximated 2.7% in1983, 3.3% in 1982 and 3.2% in 1981.

Cost ofDecommissioning Nuclear PlantThe estimated decommissioning costs of the Sus-

quehanna nuclear plant allowed for ratemakingpurposes are charged to operating expense. Suchamounts, net of income taxes, are invested in securi-ties kept in a segregated account which can be usedonly for future decommissioning costs.

38

Alloivance for Funds Used DuringConstruction fAFUDC)

As provided in the Uniform System of Accounts,th'e cost of funds used to finance construction pro-jects is capitalized as part of construction cost. Thecomponents of AFUDC shown on the Statement ofIncome under other income and deductions and in-terest charges are non-cash items equal to the costof funds capitalized during the period. The equityfunds component is reduced by the tax savings real-ized due to the tax deductibility of construction-related interest. AFUDC serves to offset on theStatement of Income the interest charges on debtand dividends on preferred and preference stockincurred to finance construction. In addition, a re-turn on common equity used to finance constructionis imputed.

See Note 5 to Financial Statements for informa-tion concerning a limitation of the tax reductionreflected in AFUDC due to the Company's tax loss.

Investment tax credits result in a reduction offederal income taxes payable. Such tax credits, otherthan credits resulting from contributions to the em-ployee stock ownership plan (ESOP), are deferredand amortized over the average lives of the relatedproperty.

See Note 4 to Financial Statements for additionalinformation concerning income taxes.

Nuclear FuelThe Company leases nuclear fuel for use in the

Susquehanna plant. Nuclear fuel rentals are chargedto fuel expense based on the quantity of heat pro-duced for electric generation. Under the NuclearWaste Policy Act of 1982, the U.S. Department ofEnergy (DOE) is responsible for the permanent stor-age and disposal of spent nuclear fuel removed fromnuclear reactors. The Company currently pays DOEa fee for future disposal services and recovers suchcosts in customer rates.

RevenuesRevenues are based on the amount of electricity

delivered to customers to the end of each account.ing period. As a result, the Company records unbilledrevenues representing the amount customers willbebilled for electricity delivered from the time meterswere last read to the end of the respective period.The Company's PUC tariffs contain an energy costrate under which customers are billed an estimatedamount for fuel and other energy costs. Any differ-ence, between the actual and estimated amount forsuch costs is collected from or refunded to customersin a subsequent period. Revenues applicable to en-ergy cost rate billings are recorded at the level ofactual energy costs and the difference is recordedas payable to or receivable from customers.

P

Income TaxesThe Company and its subsidiaries file a consoli-

dated federal income tax return. Income taxes areallocated to the individual companies based on theirrespective taxable income or loss and investmenttax credits.

Income taxes applicable to the Company are al-located to operating expenses and other income anddeductions on the Statement ofIncome. Under otherincome and deductions, the income tax credits relateprincipally to the tax reductions associated with theinterest expense which is offset by the borrowedfunds component of the allowance for funds usedduring construction.

Deferred income taxes are recorded for timingdifferences between book and taxable income tothe extent they are permitted in rate determinationsby regulatory agencies. The two principal itemsfor which deferred taxes are not currently recordedare (i) certain pension costs and employee-relatedtaxes capitalized for book purposes but deductedcurrently for income taxes and (ii) a portion of taxdepreciation in excess of book depreciation relatedto property placed in service prior to 1980.

Retirement PlanThe Company has a noncontributory retirement

plan covering substantially all employees. Com-pany contributions to the plan include current ser-vice costs and all amounts required to amortize un-funded prior service costs over periods of not morethan 20 years.

2. Change in Accounting for RevenuesTo provide a better matching of costs and

revenues, effective as of January 1, 1981, the Com-pany adopted a policy of recording revenues collectible from customers based on electricity deliveredto customers to the end of the month. Prior to 1981,revenues were recorded when bills were renderedto customers based on electricity used at the timeof monthly cycle meter readings.

The Nonrecurring Credit of $ 12,381,000 (afterrelated income tax of $ 13,236,000) shown on theStatement ofIncome for 1981 represents the cumula-tive effect prior to January 1, 1981 of the accountingchange.

3. Rate MattersIn accordance with rate orders issued by the PUC,

electric base rates for ultimate customers were in-creased by approximately $ 97 million annually inJanuary 1981, $73 millionannually in January 1982and $203 million annually in August 1983.

The August 1983 increase resulted from the Com-pany's filing which reflected the effect of placingSusquehanna Unit 1 in service. The PUC's order didnot permit the Company to earn a return on 12.6%($287 million)of its net investment in all generatingfacilities. This adjustment, which reduced requestedrevenues by about $59 million, resulted from a de-cision by the PUC that 945,000 kilowatts (12.6%) of

39

the Company's generating capacity was excess. TheCompany was permitted to recover depreciation, op-eration, maintenance and fuel costs associated withall its generating facilities.

The Company plans to file with the PUC in thesecond quarter of 1984 for an increase in electricrates to reflect the effect of placing SusquehannaUnit 2 in service and to recover other increased costsof providing electric service. A decision by the PUCon this filingwould not be expected until early 1985.

In accordance with a declaratory order ofthe PUC,the Company has deferred $ 10.0 millionof costs as-sociated with Susquehanna Unit 1 and has recordedapproximately $ 11.4 million of related deferred in-come taxes. The deferred costs were incurred prin-cipally from the date of commercial operation of theunit (June 8, 1983) until the new rates went into effect(August 22, 1983) and include all operating costs(fuel, wages, depreciation, etc.) and capital costs (in-terest and the carrying cost of equity securities), netof energy savings (reduced net cost of energy). TheCompany expects to seek recovery of such deferredcosts after the PUC renders its decision on the raterequest the Company plans to filein the second quar-ter of 1984.

The PUC has issued a declaratory order similarto that previously issued for Susquehanna Unit 1which (i) authorizes the deferral of SusquehannaUnit 2 related costs in the event the unit goes intocommercial operation before the end of the futuretest year and (ii) provides that in the event Unit 2goes into commercial operation after the end of thefuture test year, the portion of the new rates reflecting the Unit 2 costs would go into effect shortly afterthe unit begins commercial operation. The PUC hasgranted a petition filed by the Pennsylvania OfficeofConsumer Advocate for reconsideration and clari-fication of certain aspects of the declaratory order.The Company is unable to predict what action thePUC may take with respect to this petition.

The FERC permitted a $2 million increase in ratesfor wholesale customers effective in August1981 anda $3 millionincrease effective in July 1982. The Com-pany and all involved parties have filed a settlementagreement with the FERC with respect to the Com-pany's pending request for an increase in wholesalerates of approximately $ 4 million annually. If theagreement is accepted by the FERC, the rates, asfiled, would go into effect in early March 1984.

4. Income TaxesThe Internal Revenue Service (IRS) has com-

pleted its examination of the Company's federalincome tax returns for the years 1973-1978. Basedon final settlement with respect to the years 1973-1976 and adjustments proposed for 1977 and 1978,the Company does not expect any material changein its income tax liabilityfor these years.

The Company has tax loss carryforwards at De-cember 31, 1983 of approximately $156.6 million forstate income tax purposes and $115.9 million forfederal income tax purposes. About $70.9 millionofthe state tax loss carryforward can be used to reducestate income tax liabilities in 1984 with the re-

mainder usable through 1986. The carryforwhrdperiod for the federal income tax loss expires in theyears 1997 and 1998.

The Company has investment tax credits not y'etutilized which aggregated approximately $242;1 mil-lion ($31.3 million applicable to ESOP) at Dec'ember31, 1983 and may be carried forward to reduce futurefederal income tax liabilities. The carryforwardperiod for these credits expires in the years 1994to 1998.

5. Allowance for Funds Used DuringConstruction (AFUDC)

AFUDC is recorded on an after-tax basis with theequity component reduced by the income tax savingsrealized due to the tax deductibility of construction-related interest. Since 1982, the Company has beenin a tax loss carryforward position, due in part tothe large amount of construction interest incurred.As a result, the income tax reduction reflected inAFUDC has been limited to the tax applicable toconstruction interest determined to be usable as atax deduction. The combined federal and state in-come tax effect ofthe construction interest that couldnot be used as a deduction was $6.3 million in 1982and $ 55.5 million in 1983.

The Company expects that most of its carryfor-ward tax losses willbe used to offset taxable incomein future periods. As such carryforwards are used,AFUDC recorded in future years willbe reduced byan amount equal to the tax reduction applicable tothe construction interest included in the carryfor-wards so used.

6. Credit ArrangementsThe Company maintains lines of credit aggregat-

ing $ 120 million with various domestic banks. Thearrangements require the maintenance of compen-sating balances (not material in amount) or the pay-ment of commitment fees. Borrowings under theselines of credit are generally for one year at the primeinterest rate and may be prepaid at any time with-out penalty.

The Company has a loan agreement with a groupofdomestic banks pursuant to which the banks corn-mit to lend the Company up to $ 600 million on a re-volving basis with loans to mature on February 27,1987. At the option of the Company, the interest rateon borrowings would be based on the prime rate orinterest rates applicable to certificates of deposit orEurodollar deposits. At the time any borrowing ma-tures on February 27, 1987, the agreement permitsthe Company to borrow up to $600 million, the prin-cipal amount of which would be repayable in semi-annual installments over the following three years.

A revolving credit agreement with a group offoreign banks permits the Company to make short-term borrowings up to $100 million through June 15,1984. Borrowings under this agreement would bearinterest at rates based on the average rate at whichcertain participating banks accept Euro dollardeposits.

40

'Zo. the extent the full $350 million commitmentunder a'nucleic fuel lease arrangement is not beingutilized to finance nuclear fuel, the Company mayborrow from a nuclear fuel trust for general corpor-ate purposes. Borrowings bear interest at the aver-age rate of the trust's outstanding debt, would ma-ture on February 1, 1987 and may be prepaid at anytime without penalty.

During 1983, the Company borrowed and repaid$150 millionunder terms of the loan agreement withdomestic banks and also prepaid $50 millionof bor-rowings which were outstanding at December 31,1982 under the nuclear fuel lease borrowing arrange-ments. At December 31, 1983, there were no borrow-ings outstanding under any of the Company's creditarrangements.

All revolving credit agreements are maintainedby the payment of commitment fees. Commitmentfees incurred to maintain the Company's credit ar-rangements aggregated $2.6 million in 1983, $2.9million in 1982 and $2.8 million in 1981. „

7. Retirement PlanThe actuarial present value of accumulated plan

benefits and net assets at the end ofthe plan's recentfiscal years are as follows (thousands of dollars):

I'ctuarial present value ofaccumulated plan benefits: (a)

Vested-Nonvested

Net assets available forbenefits .

June 301983 1982

$ 189,313 $169,31810,501 10 452

$ 199,914 $ 179,770

$257,315 $ 173,995

(a) Excludes accumulated plan benefits which are the obligationof four insurance companies under insurance contracts.

8. LeasesCertain of the Company's leases are capital leases

in accordance with criteria established by the Fi-nancial Accounting Standards Board (FASB) ~ Anaccounting standard issued by the FASB requiresthat the Company record such leases on its balancesheet by 1987. If such leases had been capitalizedat December 31, 1983 and 1982, approximately $369.7millionand $298.3 million, respectively, would havebeen recorded as assets and as lease obligations.Recording capital leases would not affect income.

The assumed rate of return used in determiningthe actuarial present value of accumulated planbenefits was 69o for both 1983 and 1982.

Pension costs charged to expense for 1983, 1982and 1981 were $27.5 million, $23.8 millionand $19.7million, respectively.

Most of the capital leases obligate the Company topay maintenance, insurance and other related costs.

The rental cost of capitalized leases amounted to$45.3 million in 1983, $ 18.7 millionin 1982 and $16.1million in 1981, the major portions of which werecharged to operating expenses. Future minimumrentals on capitalizable leases to which the Com-pany was committed at December 31, 1983, exclud-

.ing leased nuclear fuel, are estimated as follows(millions of dollars): 1984, $ 13.8; 1985, $12.4; 1986,$ 11.3; 1987, $9.3; 1988, $7.9 and 1989 to expirationof the leases, $37.4.

Arrangements with a trust permit the Company tolease up to $350 millionof nuclear fuel to be used atthe Susquehanna plant. Nuclear fuel rentals coverthe amortization of the cost of nuclear fuel basedon the quantity of heat produced plus applicable fi-nancing charges. The unamortized cost of nuclearfuel under lease was $300 million at December 31,1983. Upon completion of heat production, the Com-pany willreceive title to the nuclear fuel.

At December 31, 1983, minimum rental commit-ments under operating leases were not materialwith respect to the Company's financial position.

9. Joint Ownership of Generating PlantsAt December 31, 1983, the Company owned un-

divided interests in three generating stations asfollows (millions of dollars):

Generating StationSusquehannaKeystone ................Conemaugh .............

PlantInvestment Ownership$3,435.7(a) 90.00%

33.5 12.3434.2 11.39

(a) Includes $ 1,677.4 applicable to Unit 2 and common facilitiesunder construction.

The Company receives a portion of the total sta-tion output equal to its percentage ownership. TheStatement of Income reflects the Company's shareof fuel and other operating costs associated with thestations. Each participant provides its ownfinancing.

10. Associated Company TransactionsThe Company purchases bituminous coal from

associated companies at a price generally equal tothe entire operating costs of those companies. Pur-chases of coal from associated companies were(millions of dollars): 1983, $263.8; 1982, $255.1;and 1981, $183.5. An oil pipeline subsidiary trans-ports oil to one of the Company's generating sta-tions. The oil transportation charges, which arebased on a PUC approved tariff, were (millions ofdollars): 1983, $ 15.1; 1982, $8.2; and 1981, $9.0.

The operations of associated companies resultedin after-tax charges against the Company's net in-come of$4.2 millionin 1983, $0.3 millionin 1982 and

41

$2.6 million in 1981. The increase in such charges in1983 was due primarily to a subsidiary charging toexpense certain interest costs and property taxesthat in prior years were capitalized as part of thesubsidiary's cost of coal reserves.

See Note ll to Financial Statements for informa-tion concerning the Company's guarantee ofcertainobligations of associated companies.

11. Commitments and Contingent LiabilitiesThe Company's construction expenditures are

estimated to aggregate $ 474 million in 1984, $214million in 1985 and $254 million in 1986, includingthe allowance for funds used during construction.See the sections entitled "Susquehanna Plant" and"Capital Expenditure Requirements" on page 25 foradditional information concerning the Company'splanned construction expenditures.

The Comp'any is a member of certain insuranceprograms which provide coverage for property dam-age to members'uclear generating plants. Facili-

ties at the Susquehanna plant are insured againstproperty damage losses up to $ 1.0 bilhon un'der theseprograms. The Company is also a member of an in-surance program which provides coverage for thecost of replacement power during prolonged outagesof nuclear units caused by certain specified condi-tions. Under the property and replacement powerinsurance programs, the Company could be assessedretrospective premiums in the event the

insurers'osses

exceed their reserves. The maximum amountthe Company could be assessed under these pro-grams during the current policyyear is $ 16.3 million.

In the event of a nuclear incident at any of thefacilities covered by the federal government's third-party liability indemnification program, the Com-pany could be assessed up to $5 millionper incident,but not more than $ 10 million in a calendar year inthe event more than one incident is experienced.These amounts will double when the Company re-ceives an operating license for Susquehanna Unit2.

At December 31, 1983, the Company had guar-anteed capital and other obligations of other com-panies (principally subsidiary coal companies and asubsidiary pipeline company) totaling$ 256.1million.

42

Auditors'.Opinion

DELOITTEHASEINS &SELLSCertified Public Accountants

One World Trade CenterNew York, New York 10048

To the Shareowners and Board of Directors of Pennsylvania Power & Light Company:

We have examined the balance sheets of Pennsylvania Power & Light Company as ofDecember 31, 1983 and 1982 and the related statements ofincome, earnings reinvested, andchanges in financial position for each of the three years in the period ended December 31,1983. Our examinations were made in accordance with generally accepted auditingstandards and, accordingly, included such tests of the accounting records and such otherauditing procedures as we considered necessary in the circumstances.

In our opinion, such financial statements present fairly the financial position of theCompany at December 31, 1983 and 1982 and the results ofits operations and the changesin its financial position for each of the three years in the period ended December 31, 1983,in conformity with generally accepted accounting principles consistently applied duringthe period subsequent to the change, with which we concur, made as ofJanuary 1, 1981, inthe method of accounting for unbilled revenues, as described in Note 2 to the financialstatements.

'February 3, 1984

Supplementary InfOrmatiOn On Changing PrieeS (Unaudited)

The F<inancial Accounting Standards Board(FASB), an organization that establishes rules foraccounting and financial reporting, has issued astatement that requires the presentation of certaininformation on the effects of general inflation andchanges in the prices of certain specific types ofassets. Customary financial reporting generally hasnot attempted to specifically reflect inflation. TheF'ASB statement requires that certain aspects ofinfla-tion be computed in accordance with prescribedtechniques and reported on an experimental basis.

The FASB recognizes, and the Company cautionsusers of this information, that there is no consensuson the general practical usefulness of this supple-mentary information. There are also unresolvedimplementation problems and conceptual differencesregarding the manner in which the effects ofchanging prices should be measured.

The F<ASB statement attempts to measure theeffects of changing prices in two different ways:

1. Constant dollars —In a period of inflation, theamount of goods and services one dollar willbuydeclines. Since financial data often involvesdollars expen'ded in different years, it is suggestedthat combining or comparing such dollars is

misleading. The constant dollar method shows theeffects of general inflation by adjusting data todollars of the same purchasing power by applica-tion of the U.S. Government Consumer Price Indexfor AllUrban Consumers (CPI-U).

The constant dollar method simply restatesamounts recorded on a company's books to thelevel of average dollars for the current year. F<orexample, the average CPI-U was 217.5 in 1979 and298.4 in 1983. The restatement of $ 1.00 of propertyacquired in 1979 to average 1983 dollars wouldbe accomplished by multiplying the $ 1.00 by theratio 298.4 . 217.5, resulting in $ 1.37 of property interms of average 1983 dollars.

2. Current cost—In a period of inflation, prices ofmost goods and services increase but not neces-sarily all at the same rate. The current cost methodshows the impact of inflation on a company bymeasuring the estimated change in prices of thespecific goods and services used by that company.

The Company has elected to present the "Supple-mentary Statement of Income" data in accordancewith the partial restatement provision of the F<ASBstatement. Under this provision, utilityplant, net ofaccumulated depreciation, and depreciation expenseare the only items restated to reflect general inflation

43

(Constant Dollars) and specific price changes (Cur:rent Cost). F~uel inventories and the cost offuel used ingeneration have not been restated from their histori-cal cost since, under rate regulation, the recovery ofthe cost of fuel is limited to the actual cost of the fuelburned. Revenues, income taxes and expenses otherthan depreciation are presented at the amountsreported in the basic financial statements.

Set forth under "Other Impacts ofChanging Prices"are the following:

1. Gain from decline in purchasing power of netamounts owed.

Inflation also affects monetary assets, suchas cash and receivables, which lose purchasingpower during inflationary periods since theseassets will in time purchase fewer goods orservices. Conversely, holders of monetaryliabilities benefit during such periods becauseless purchasing power willbe required to satisfythese obligations. Monetary liabilities includepreferred and preference stock issues with sink-ing fund requirements, long-term debt, current li-

'bilities, deferred taxes and tax credits and other

deferred credits. The Company is in a net mone-tary liabilityposition.

2. Increase in the current cost ofnet utilityplant as aresult of specific price changes experienced,

The increase in the current cost amount of netutility plant is shown before and after elimi-nating the effects of general inflation as meas-ured by the CPI-U.

3. Adjustment of net utility plant to net recoverableamount.

Under the ratemaking prescribed by regula-tory commissions, only the historical cost ofutilityplant is recoverable in revenue as depreci-ation. Therefore, the difference between theamount of utility plant stated in terms of con-stant dollars and current cost (after deductingthe effects ofgeneral inflation) and thehistoricalcost is reflected as an adjustment to net recover-able amount.

The adjustment in terms of constant dollarsreflects only the effects ofgeneral inflation on thehistorical cost of utilityplant and is a reductionin 1983. The adjustment in terms ofcurrent cost iscomputed after the general inflation effect isdeducted from the increase in the specific priceamount of net utilityplant.

Supplementary Statement ofIncome for 1983 (Thousands of Dollars)

Operating revenuesOperating expenses

Depreciation (a) .

Other .

Interest expenseOther income and deductions —net ...........Dividends on preferred and preference stock

As Reportedin FinancialStatements(Historical

Cost)

$ 1,248,397

107,885850,582958,467167,674

(173,755)85,838

1,038,224

Earnings applicable to common stock ......... $ 210,173

Other Impacts of Changing PricesGain from decline in purchasing power of net amounts owed ......Increase in specific prices (current cost) of net utility

plant during the year (c) .

Increase in current cost of net utilityplant ifchangein general price level were applied

Excess of increase in specific prices over increase ingeneral price level

Adjustment of net utilityplant to net recoverableamount —(reduction) .

Adjusted onthe Basis of

GeneralInflation

(Constant Dollar)(Stated in Average

$ 1,248,397

226,456850,582

1,077,038167,674

(173,755)85,838

1,156,795

$ 91,602(b)

$ 125,670

$ (76,282)

Adjusted ontice Basis of

Price ChangesExperienced

(Current Cost)1983 Dollars)

$ 1,248,397

240,245850,582

1,090,827 r167,674

(173,755)85,838

1,170,584

$ 77,813

$ 125,670

447,957

(337,391)

$ 110,566

$ (173,059)

(n) Constant dollar utilityplant wns determined by applying theCPI-U index to the historical cost of surviving plant. Thecurrent cost of utility plant wns determined by applyingconstruction cost indices maintained by the Company to thehistorical cost The respective adjusted provisions for depre-ciation were determined by applying the functional class de-preciation accrual rates to the respective average year.endbalances of depreciable plant adjusted for general inflation(constant dollar) and specific price changes (current cost).

(b) Including the reduction to net recoverable amount, earningsapplicable to common stock on a constant dollar basis wouldhave been $ 15,320 for 1983.

(c) At December 31, 1983, the current cost ofnet utilityplant wns$9.67 billion, while the historical cost or nct amountrecoverable through depreciation was $5.59 billion.

44

%he following schedule presents a summary ofselected data c0mparing items as they are normally

reported in financial statements or other statisticalsummaries to items adjusted for changing prices.

Supplementary Comparison of SelectedData (Thousands of Dollars)

1983 1982 1981 1980 1979Income Items —Constant Dollar and Current

Cost Amounts in Average 1983 DollarsEarnings Applicable to Common Stock

As reported (a)Constant dollarsCurrent cost

Earnings Per Share of Common StockAs reported (a)Constant dollarsCurrent cost

Amount by Which the Increase in General PriceLevel of Net UtilityPlant is Greater Than or(Less Than) the Increase in Specific Prices ofNet UtilityPlant ..........................

Adjustment of Net UtilityPlant to NetRecoverable Amount—write-up (reduction)

Constant dollarsCurrent cost .

Gain from Decline in Purchasing Powerof Net Amounts Owed .

Net Assets at Year-End (b)As reported

onstant dollarsurrent cost

$ 210,17391,60277,813

3.061.331.13

$ 210,57299,64790,889

3.351.591.45

(76,282)(173,059)

125,670

1,999,3241,965,7271,965,727

(63,987)(331,143)

116,374

1,875,0701,913,5461,913,546

(110,566) (275,914)

$ 170,80176,47974,513

3.171.411.38

$ 120,384.43,36933,765

2.640.950.73

(274,196)(338,517)

245,821

1,666,8121,766,8801,766,880

(403,826)3,984

318,436

1,482,0921,711,5181,711,518

(66,287) 398,206

$ 133,53293,68172,289

3.322.331.80

253,240

(471,669)(197,037)

346,606

1,344,8161,734,9481,734,948

Other Supplementary Data (c)Operating Revenues

As reportedAverage 1983 constant dollars .........

Cash'Dividends Declared PerCommon Share

As reportedAverage 1983 constant dollars .......

Market Price Per Common Share atYear-End

As reportedAverage 1983 constant-dollars .......

Average Consumer Price Index (CPI-U) ..d

$ 1,248,3971,248,397

2.40240

20.6220.28298.4

2.322.39

2.242.47

2.122.56

2.042.81

21.0021 43289.1

17.1218.15272.4

15.62 17.7518.04 23.04246.8 21,7.5

$ 1,219,548 $1,133,278 $ 885,451 $ 860,4981,258,779 1,241,447 1,070,578 1,180,564

(n) 1981 excludes n nonrecurring credit related to an accountingchange.

(b) Net assets (shnreowners'quity) for purposes of this supple-mentary disclosure include common equity nnd the preferrednnd preference stocks without sinking fund requirements. The

~ preferred nnd preference stocks with sinking fund require-ments have been excluded since they were treated ns monetaryitems.

(c) Other Supplementnry Data is n comparison of items as norm.ally reported nnd as adjusted to average 1983 constant dollarsby applying the CPI-U index.

45

Summary of Quarterly Results of Operations (Unaudited)

QuarterEnded

Operating-Revenues

Operating ~ NotIncome Income

Thousands of Dollars

EarningsApplicablc to

Common Stock

EarningsPer Shareof Common

Stock (a)

1983MarchJuneSeptemberDecember

$305,088270,909285,151387,249

$62,64355,95673 37397,958

$79,82369,33268,90277,954

$60,05547,86846,52355,727

$0.890.700.670.80

1982MarchJuneSeptemberDecember

$363,764279,262284,450292,072

$72,80248,69049,73551,856

$83,38656,97065,02873,502

$66,48640,08848,22055,778

$ 1.120.660.740.84

(a) Based on the average number of shares outstanding duringthe quarter. The total of the four quarterly earnings per shareamounts may not equal earnings per share for the year due tochanges in the number ofcommon shares outstanding duringthe year and rounding.

Common Stock Price and Dividend Data

QuarterEnded1983MarchJune .

SeptemberDecember

1982MarchJune .

SeptemberDecember

High Low

$24'/2 $ 207/s24'/s 20'/423'/» 20'/»24'/s 20

$19'/» $16'/~20'/» 17'/i20»/~ 17'/»217/» 19~/»

The principal trading market for the Company'scommon stock is the New York Stock Exchange.The stock is also listed on the Philadelphia StockExchange. The number ofrecord holders ofcommonstock was 169,142 as of December 9, 1983. The highand low sales prices ofthe Company's common stockon the Composite Tape for the past two years asreported by The Wall Street Journal were as follows:

The Company has paid quarterly cash dividendson its common stock in every year since 1946. Thedividends paid per share in 1983 and 1982 were$2.38 and $2.30, respectively. The most recentregular quarterly dividend declared by the Companywas 60 cents per share (equivalent to $2.40 perannum) paid January 1, 1984. Future dividends willbe dependent upon future earnings, financial re-quirements and other factors.

The Company has estimated that all of its 1983dividends paid on common stock and 19.16% of itsdividends paid on preference stock will not be tax-able for federal income tax purposes as dividend in-come, but will constitute a return of capital whichreduces the tax cost basis of the shares on which thedividends were paid.

46

Fiscaf. Agents

TRANSFER AGENTS FOR PREFERRED,PREFERENCE AND COMMON STOCK

Industrial Valley Bank and Trust Company634 Hamilton MallAllentown, Pennsylvania 18101

Morgan Guaranty Trust Company of New York30 West BroadwayNew York, New York 10015

Pennsylvania Power & Light CompanyTwo North Ninth StreetAllentown, Pennsylvania 18101

REGISTRARS FOR PREFERRED,PREFERENCE AND COMMON STOCK

The first National Bank of AllentownHamilton Mall at SeventhAllentown, Pennsylvania 18101

Morgan Guaranty Trust Company of New York30 West BroadwayNew York, New York 10015

DEPOSITARY FOR DEPOSITARYPREF<ERENCE SHARES

Morgan Guaranty Trust Company of New York30 West BroadwayNew York, New York 10015

DIVIDENDDISBURSING OFFICE ANDDIVIDENDREINVESTMENT PLAN AGENT"'ice President and Treasurer

Pennsylvania Power & Light CompanyTwo North Ninth StreetAllentown, Pennsylvania 18101

Securities Listed On Exchanges

NEW, YORK STOCK EXCHANGE4'/~% Preferred Stock (Code: PPLPRB)4.40% Series Preferred Stock (Code: PPLPRA)8.60% Series Preferred Stock (Code: PPLPRG)9.24% Series Preferred Stock (Code: PPLPRM)Preference Stock, $8.00 Series'(Code: PPLPRJ)Preference Stock, $8.40 Series (Code: PPLPRH)Preference Stock, $8.70 Series (Code: PPLPRI)Preference Stock, $ 11.00 Series (Code: PPLPRL)Preference Stock, $ 13.00 Series (Code: PPLPRK)Depositary Preference Shares Representing:

Preference Stock, $ 11.60 Series (Code: PPLPRP)Preference Stock, $ 13.00 Second Series (Code: PPLPRO)Preference Stock, $ 15.00 Series (Code:PPLPRN)

Common Stock (Code: PPL)

PHILADELPHIASTOCK EXCHANGE4'/2% Preferred Stock3.35% Series Preferred Stock4.40% Series Preferred Stock4.60% Series Preferred Stock8.60% Series Preferred Stock9% Series Preferred Stock9.24/o Series Preferred StockPreference Stock, $8.00 SeriesPreference Stock, $8.40 SeriesPreference Stock, $8.70 SeriesPreference Stock, $ 11.00 SeriesPreference Stock, $ 13.00 SeriesDepositary Preference Shares Representing:

Preference Stock, $ 11.60 SeriesPreference Stock, $ 13.00 Second SeriesPreference Stock, $ 15.00 Series

Common Stock

47

Officers Directors h

ROBERT K. CAMPBELL,Presidentand Chief Executiue Officer

ROBERT R. FORTUNE, Executiue Vice President-Financial

JOHN T. KAUFFMAN,Executive Vice President-Operations

JACK R. CALHOUN,Senior Vice President.IVuclear

MERLINF. HERTZOG, Senior Vice President-Human Resource & Deuelopment

LEON L. NONEMAKER,Senior Vice President-Division Operations

JOHN R. BIGGAR, Assistant Treasurer

GENNARO D. CALIENDO, Vice Presidentand Chief Counsel-Regulatory Affairs

NORMAN W. CURTIS, Vice President-Engineering & Construction. Nuclear

CHARLES J. GREEN, Vice President. Harrisburg Diuision

WILLIAMF. HECHT, Vice President. System Power

BRUCE D. KENYON, Vice President-1Vuclear Operations

JOHN P. KIERZKOWSKI,Assistant Treasurer

CARLR. MAIO,Vice President-Lehigh Diuision

GRAYSON E. McNAIR, Vice President-Marketing & Customer Seruices

EDWARD M. NAGEL, Vice President,General Counsel and Secretary

HERBERT D. NASH JR., Vice President. Central Division

JOHN E. ROTH, Vice President-Northern Diuision

CHARLES E. RUSSOLI, Vice President and Treasurer

JOHN H. SAEGER, Vice President. Susquehanna Diuision

EDWIN H. SEIDLER, Vice President-Engineering &Construction System Power &Engineering

BRENT S. SHUNK, Vice President-Lancaster Division

JEAN A. SMOLICK,Assistant Secretary

GEORGE F. VANDERSLICE,Vice Presidentand Comptroller

PAULINEL. VETOVITZ,Assistant Secretary

HELEN J. WOLFER, Assistant Secretary

Corporate Management Committee: Robert K. Campbell, chairman;Robert R. Fortune John T. Knuffman, Jack ILCalhoun, Merlin F. Hcrtzog,Leon L Nonemnker nnd Edward F. Reie, Director.Corporate Planning,serving as the committee's executive secretary.

CLIFFORD L. ALEXANDERJR., Washington, D.C.President, Alexander & Associates Inc.Consultants to business, government &industry

ELIZABETHE. BAILEY,PittsburghDean, Graduate School of Industrial Administration,Carnegie-Mellon University

ROSWELL BRAYTONSR., WoolrichPresident and Chief Executive Officer, 1Voolrich 1VoolenMillsInc. Manufacturer ofgarments for outdoor activities

JEFFREY J. BURDGE, Camp HillChairman of the Board and Chief Executiue Officer, HarscoCorporation. Manufacturer ofprocessed and fabricated metals

ROBERT K. CAMPBELL,AllentownPresident and Chief Executive Officer

EDGAR L. DESSEN, HazletonPhysician. Radiologist

EDWARD DONLEY, AllentownChairman ofthe Board and ChiefExecu tiue Officer, AirProductsand Chemicals Inc. Manufacturer ofindustrial and commercialgases and chemicals

ROBERT R. FORTUNE, AllentownExecutiue Vice President-Financial

FRANCES R. HESSELBEIN, New York CityIVational Executive Director, Girl Scouts of the U.S.A.

HARRY A. JENSEN, LancasterDirector and former Chief Executive Officer, Armstrong 1VorlgfIndustries Inc. Manufacturer of interior furnishings andspecialty products

JOHN T. KAUFFMAN,AllentownExecuti ue Vice President Operations

W. DEMING LEWIS, BethlehemPresident Emeritus, Lehigh Uniucrsity

HAROLD S. MOHLER, HersheyFormer Chairman of the Board, Hershey FoodsCorporation. Diversified manufacturer of food products

RALPH W. RICHARDSON JR., State CollegeConsultant, agricultural and enuironmental sciences

NORMANROBERTSON, PittsburghSenior Vice President and Chief Economist,Mellon Bank, N.A.

DAVIDL TRESSLER, ScrantonChairman of the Board and Chief Executiue Officer,northeastern Bancorp, Inc.

Executive Committee: Robert K.Campbell, chairman; Edgar LDessen,Harry A. Jensen, W. Deming Lewis nnd Norman Robertson.

Audit Committcc: Harold S. Mohler, chairman; Clifford L AlexanderJr., Elizabeth E. Bailey, Rcswell Brayton Sr., Ralph W. Richardson Jr. andDavid L. Trcssler.

Corporate Responsibility Committee: Edgar L Dessen, chairman;Jeffrey J. Burdge, Frances R. Hesselbein, Harold S. Mohler and David LTressler.

Management Development and Compensation Committee:Roswell Brayten Sr. chairman; Clifford L Alexander Jr., Elizabeth E.Bailey, Edward Donfey, W. Deming Lewis and Norman Robertson.

Nominating Committee: Ralph W. Richardson Jr. chairman; Jeffrey J.Burdge, Edward Donley, Frances R. Hesselbein nnh Harry A.Jensen.

The Company's annual report filed with the Securities and Exchange Commission on Form 10-K willbeavailable mid-March. A shareowner may obtain a copy, at no cost, by writing to Pennsylvania Power &Light Company, Two North Ninth Street, Allentown, Pa. 18101, attention: Mr. George 1. Kline, InvestorServices Manager.

48

Board of Directors. "le

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Pennsylvania Power & Light CompanyTwo North Ninth Street ~ Allentown, PA 18101 ~ 215/ 770-5151

SULK ftATE "LL S. POSTAGE

PAIDAllentowg, Pa.

'ermitNo. 104

Susquehanna Unit 1—Commercial Operation Ju ne 8, 1983

Unit 1 at PP&L's Susquehan-na nuclear plant was placedin commercial operation onJune 8, 1983. Susquehanna,along with our excellentfossi I-fueled generatingplants, willprovideabundant, competitivelypriced electric energy topower thejobs, the lifestyles,and the futures of thoselivingin Central EasternPennsylvania —from nowinto the 21st century.

Litho ln U.