01—Abstract
Summary
Summary of the 10-K filed February 28, 1997. Cited figures are marked; the original filing is the authoritative source.
PP&L Resources, Inc. (filed under this name; the registrant also includes Pennsylvania Power & Light Company, PP&L) reported 1996 earnings of $2.05a per share, unchanged from 1995 and up from $1.41 in 1994.
Excluding workforce reductions and one-time adjustments, earnings per share were $2.05b in 1996 versus $1.79 in 1995 and $2.02 in 1994. Operating revenues rose $158 million, or 5.8%, to $2,910 million, driven by the 3.8% base rate increase from the September 1995 PUC Decision, stronger sales across customer classes, and sales to other utilities, including a one-year contract to supply PSE&G. Net income was $329 million.
PP&L is the principal subsidiary, accounting for about 97%c of consolidated assets, so its results drive the parent's results. The filing's main forward-looking issue is the restructuring of Pennsylvania's electric industry, enacted in December 1996 and effective January 1, 1997. It introduces retail customer choice phased in from 1999 to 2001, rate caps for at least 4-1/2 years on transmission and distribution and up to 9 years on generation, and the possibility of recovering stranded costs through transition bonds.
PP&L plans to file its restructuring plan on April 1, 1997, and says it cannot yet predict the legislation's ultimate effect on its finances. The filing also notes that reduced contractual bulk power sales to JCP&L and other major utilities will continue to weigh on earnings over the next few years. On the balance sheet, total assets were $9,636 milliond and long-term debt was $2,832 million at year-end 1996.
The company reported a 12.30% return on average common equity, down from 12.81% in 1995, and planned construction and capital expenditures of about $1.7 billion for 1997-2001. Investments in unregulated subsidiary PMDC include a 25% interest in SWEB, the British regional electric utility, acquired for about $189 million, and a planned purchase of a 25.05% interest in Chile's Empresas Emel for about $120 million in mid-1997. Environmental and Superfund exposures are significant, and several legal proceedings are pending, though most are described as not expected to be material.
02—Key points
Key Highlights
- Earnings per share of $2.05 in 1996, flat with 1995 and up from $1.41 in 1994; excluding workforce reductions and one-time items, EPS rose to $2.05 from $1.79.
- Operating revenues increased $158 million, or 5.8%, to $2,910 million, supported by the 3.8% PUC Decision base rate increase and stronger sales in all service-area classes.
- Pennsylvania enacted electric industry restructuring legislation in December 1996, effective January 1, 1997, with retail choice phased in from 1999 to 2001 and rate caps of at least 4-1/2 years for T&D charges.
- Contractual bulk power sales to JCP&L and other major utilities are declining and will continue to weigh on earnings over the next few years.
- Return on average common equity was 12.30% in 1996, versus 12.81% in 1995; book value per share rose to $16.87 from $16.29.
- PMDC, the unregulated subsidiary, holds a 25% interest in SWEB acquired for about $189 million and plans to buy a 25.05% interest in Empresas Emel for about $120 million in mid-1997.
- Capital expenditures are projected at about $1.7 billion for 1997-2001, and the company has a $135 million borrowing outstanding under its PP&L Resources revolving credit facility.
03—Questions
Frequently Asked Questions
How did PP&L Resources perform financially in 1996?
Net income was $329 million and earnings per share were $2.05, flat with 1995. Operating revenues rose 5.8% to $2,910 million, driven by the PUC Decision base rate increase and higher sales. Excluding workforce reductions and one-time adjustments, EPS rose to $2.05 from $1.79.
What does Pennsylvania's restructuring legislation mean for PP&L?
The December 1996 law creates retail access to competitive electricity supply. Retail choice phases in with up to 33% of load in 1999, 66% in 2000 and 100% by January 1, 2001. Rates are capped for at least 4-1/2 years for transmission and distribution and up to 9 years for generation. PP&L must file a restructuring plan by September 30, 1997, planned for April 1, and says it cannot predict the ultimate financial effect.
Why are earnings expected to face pressure?
The filing says reduced contractual bulk power sales to JCP&L and other major utilities will continue to adversely affect earnings over the next few years. PP&L is trying to sell this returning energy and capacity on the open market, and the restructuring legislation could also have a major impact on future financial performance.
What are the company's major capital and investment plans?
Projected capital expenditures for 1997-2001 total about $1.7 billion. In unregulated investments, PMDC holds a 25% interest in SWEB, acquired for about $189 million, and plans to purchase a 25.05% interest in Empresas Emel for about $120 million in mid-1997. Funding is expected from about $170 million of medium-term notes and about $70 million of DRIP common stock issuance.
What environmental and legal risks does the filing disclose?
PP&L states it is in substantial compliance with environmental laws. It faces Superfund exposure at several sites, including a Montour County site where remediation is estimated at about $37 million under the EPA order, and the Clean Air Act may require further capital and operating costs beyond 2001 that are not yet determinable. Several lawsuits are pending, including an antitrust case that was reportedly to be settled in February 1997 without a material effect, and a dispute with SER, a non-utility generator. The filing says the outcomes of many of these matters cannot be predicted.
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