ALLENTOWN, Pa.---PP&L Resources, Inc. (NYSE:PPL), parent company of PP&L, said Monday (8/14) that it would evaluate the unsolicited proposal it has received from PECO Energy Company (NYSE:PE) and respond to the proposal as and when appropriate.

William F. Hecht, chairman, president and chief executive officer of PP&L Resources, replied in a letter to Joseph Paquette Jr., the chairman of PECO, that PECO's proposal would be given careful consideration by the PP&L Resources Board.

Hecht noted, however, that the PECO proposal contained "several areas of substantial concern," including the real effect on PP&L's shareowners, employees and other constituencies; whether the PECO proposal would result in any rate increases for PP&L customers; how the "savings" suggested by PECO would be realized; and whether the value of the combined enterprise would be negatively impacted by PECO's past investment costs, which PECO may not be able to recover from its customers in a deregulated environment. These costs have been estimated by industry analysts to be in a range from $4.86 billion to $7 billion.

Hecht said that the PP&L Resources Board, working with outside legal and financial advisers, will study the proposal.

Here's the text of Hecht's letter to Paquette:

Dear Joe:

I am in receipt of your letter of August 14, 1995. I am disappointed that you took this precipitous step despite my earlier correspondence in which I requested that you not take any further action before the Board of PP&L Resources assesses the wisdom of combining our two companies and determines whether any such combination would be beneficial to the shareowners and other investors, customers, employees and other constituencies of PP&L Resources. Nevertheless, the Board will fully evaluate your proposal, give it careful consideration, and respond to you as and when appropriate.

Based upon your prior correspondence, I would point out that there are several areas of substantial concern to the Board. As I specifically indicated to you in our previous discussions, PP&L Resources is particularly troubled by PECO's high-cost structure and seriously concerned about its ability, in a deregulated environment, to recover its considerable past investment costs. Your proposal still fails to address these and other critical issues.

As you are probably well aware, PP&L Resources takes significant pride in what it has accomplished. In spite of a difficult economic environment, PP&L has succeeded in providing reliable power to our residential, commercial and industrial customers at rates that are substantially lower than those of PECO. Because we have kept our retail rates stable over the past decade, we have helped our communities grow and rebound from a long and arduous recession. We have been able to achieve our long-term objectives of charging rates that are fair and attractive to customers, while generating sufficient earnings to provide our shareowners with an attractive total return on their investment.

Among the specific issues raised by your proposal that the PP&L Resources Board will be studying include:

• Whether PECO will be able to recover its past investment costs in a competitive environment and whether these costs, if unrecoverable, will diminish the value of the combined enterprise at the expense of PP&L Resources shareowners. Some industry analysts have calculated that PECO's unrecoverable costs could be in a range from $4.86 billion to $7 billion. For example, in a July 1995 report, Moody's Investors Service estimated that PECO's unrecoverable costs are more than $4.86 billion and represent 114 percent of PECO's book equity.
• Whether PECO ultimately will pass on any of its costs to PP&L customers through rate increases. We note that PECO's rates are among the highest in Pennsylvania; in fact, they are as much as 55 percent higher than PP&L's.
• Whether PECO can realistically achieve its projected "savings" of about $2 billion over 10 years and whether these "savings" will come at the expense of PP&L's employees in the form of terminations; at the expense of PP&L customers in terms of service levels; and, ultimately, at the expense of the communities PP&L serves.
• The impact of the implied 16 percent reduction in dividends on PP&L shareowners.

These are just a few of the matters we will be addressing in our evaluation. As you can appreciate, these are not insignificant questions for our Board to consider, and they have major implications and potential ramifications for our shareowners and other investors, customers, employees and other constituencies. I can assure you that, working with our outside legal and financial advisors, we will diligently analyze and evaluate your proposal and respond in due course.

Sincerely,

William F. Hecht