Pennsylvania Power & Light Co. Wednesday (1/25) reported earnings of $1.41 per share of common stock for the 12-month period ended Dec. 31, 1994, down about 32 percent from the $2.07 per share reported by the company for the comparable period the year before.
Substantially all of the reduction can be traced to nonrecurring charges, including two major charges in the fourth quarter — a $43 million after-tax charge against net income for a voluntary early retirement program and a $40 million after-tax charge against net income related to a re-evaluation of the book value of coal reserves held by a PP&L subsidiary. These two charges reduced 1994 earnings by a total of 54 cents per share of common stock.
"As we prepare for increased competition, we're making tough management decisions now that will help us in the long run," said Ronald E. Hill, senior vice president-Financial. "These nonrecurring charges are behind us now, allowing us to continue to move forward to be successful in the industry's new competitive atmosphere."
In the fourth quarter of 1994, PP&L recorded a loss of $7 million or 5 cents a share, compared to earnings of $73 million or 48 cents a share in the fourth quarter of 1993. Without the one-time charges, fourth quarter earnings would have been about the same as they were in the fourth quarter of 1993.
"Had it not been for the one-time charges, PP&L's 1994 earnings per share would have been $2.02, down slightly from 1993," said Hill.
"We had very strong sales growth during 1994," Hill said. "We're especially encouraged by the increase in industrial sales, a strong sign of regional economic health." Overall sales to service area customers rose 4.1 percent during the year. Adjusting for the effects of cold winter weather earlier in the year, the increase in sales to service area customers was 3.5 percent. Industrial sales, which are not affected by weather, rose 4.8 percent during the year.
A total of 640 of the 851 eligible employees elected to take early retirement in late 1994, resulting in the charge against net income. The program was offered as part of PP&L's ongoing effort to reduce costs and improve operating efficiency as the company moves toward a more competitive environment.
The early retirements will save PP&L about $35 million per year in operating expenses, and, as such, the program will "pay for itself" in about two years.
"The early retirement program is the most visible component to customers of our aggressive internal actions to prepare for change in our business, and to reduce our costs before having to ask customers to pay more for their electric service," Hill said.
The early retirement savings are reflected in the rate increase request filed Dec. 30. While PP&L has requested recovery of the cost of the early retirement program in the rate increase, the request is less than it otherwise would have been if the company had not initiated the retirement program.
The other major fourth-quarter charge is related to a re-evaluation of the value at which one of PP&L's subsidiary companies recorded its investment in undeveloped coal reserves in western Pennsylvania. In a review of noncore business assets, it was determined that the book value for the reserves exceeded their fair value and a write-down was necessary.
"As part of our ongoing management process, we make sure our assets are properly valued, and we make adjustments as necessary," said Hill.
Additionally, earnings for 1994 were adversely impacted by about 10 cents per share of common stock due to two nonrecurring charges related to regulatory decisions earlier in the year. These charges related to the state Public Utility Commission's disallowance of replacement power costs during an extended refueling outage at the Susquehanna nuclear power plant, and a Pennsylvania Commonwealth Court ruling denying the company the ability to recover certain costs associated with post-retirement benefits.
Regarding the disallowance on the Susquehanna outage, PP&L protested the decision and reached a tentative settlement that would permit the company to recover some of the disallowed costs. If approved by the PUC, the settlement would have a positive effect on earnings in a future reporting period.
The company is awaiting results of its appeal of the Commonwealth Court decision to the Pennsylvania Supreme Court.
Consolidated Financial Information (unaudited)