<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-3701
THE WASHINGTON WATER POWER COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0462470
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At November 1, 1996, 55,960,360 shares of Registrant's Common Stock, no par
value (the only class of common stock), were outstanding.
<PAGE> 2
THE WASHINGTON WATER POWER COMPANY
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
September 30, 1996 and 1995....................................... 3
Consolidated Statements of Income - Nine Months Ended
September 30, 1996 and 1995....................................... 4
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995............................................. 5
Consolidated Statements of Capitalization - September 30, 1996
and December 31, 1995............................................. 6
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995....................................... 7
Schedule of Information by Business Segments - Three Months Ended
September 30, 1996 and 1995....................................... 8
Schedule of Information by Business Segments - Nine Months Ended
September 30, 1996 and 1995....................................... 9
Notes to Consolidated Financial Statements............................ 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 13
Part II. Other Information:
Item 5. Other Information................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 19
Signature............................................................................... 20
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Three Months Ended September 30
Thousands of Dollars
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES ............................. $ 219,751 $ 157,869
--------- ---------
OPERATING EXPENSES:
Operations and maintenance .................. 135,804 84,856
Administrative and general .................. 19,322 14,844
Depreciation and amortization ............... 18,070 15,591
Taxes other than income taxes ............... 10,928 11,013
--------- ---------
Total operating expenses .................. 184,124 126,304
--------- ---------
INCOME FROM OPERATIONS ......................... 35,627 31,565
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ............................ (16,895) (14,709)
Net gain on subsidiary transactions ......... 6,850 --
Merger-related expenses ..................... (303) --
Other income (deductions)-net ............... 57 1,152
--------- ---------
Total other income (expense)-net .......... (10,291) (13,557)
--------- ---------
INCOME BEFORE INCOME TAXES ..................... 25,336 18,008
INCOME TAXES ................................... 6,972 7,123
--------- ---------
NET INCOME ..................................... 18,364 10,885
DEDUCT-Preferred stock dividend requirements ... 1,792 2,267
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK .............. $ 16,572 $ 8,618
========= =========
Average common shares outstanding (thousands) .. 55,960 55,363
EARNINGS PER SHARE OF COMMON STOCK ............. $ 0.30 $ 0.16
Dividends paid per common share ................ $ 0.31 $ 0.31
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30
Thousands of Dollars
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES ............................. $ 663,655 $ 514,770
--------- ---------
OPERATING EXPENSES:
Operations and maintenance .................. 367,438 253,102
Administrative and general .................. 57,268 47,876
Depreciation and amortization ............... 53,345 46,656
Taxes other than income taxes ............... 37,643 36,994
--------- ---------
Total operating expenses ................ 515,694 384,628
--------- ---------
INCOME FROM OPERATIONS ......................... 147,961 130,142
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ............................ (47,461) (44,160)
Net gain on subsidiary transactions ......... 23,914 1,952
Merger-related expenses ..................... (15,848) --
Other income (deductions)-net ............... 179 (38)
--------- ---------
Total other income (expense)-net .......... (39,216) (42,246)
--------- ---------
INCOME BEFORE INCOME TAXES ..................... 108,745 87,896
INCOME TAXES ................................... 39,503 33,393
--------- ---------
NET INCOME ..................................... 69,242 54,503
DEDUCT-Preferred stock dividend requirements ... 6,199 6,863
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK .............. $ 63,043 $ 47,640
========= =========
Average common shares outstanding (thousands) .. 55,960 54,980
EARNINGS PER SHARE OF COMMON STOCK ............. $ 1.13 $ 0.87
Dividends paid per common share ................ $ 0.93 $ 0.93
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
The Washington Water Power Company
- --------------------------------------------------------------------------------
Thousands of Dollars
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
PROPERTY:
Utility plant in service-net .............................. $1,928,445 $1,880,620
Construction work in progress ............................. 33,403 23,046
---------- ----------
Total ................................................... 1,961,848 1,903,666
Less: Accumulated depreciation and amortization .......... 581,850 546,248
---------- ----------
Net utility plant ....................................... 1,379,998 1,357,418
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net .......................... 77,094 82,252
Non-utility properties and investments-net ................ 153,489 135,612
Other-net ................................................. 21,302 9,593
---------- ----------
Total other property and investments .................... 251,885 227,457
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents ................................. 9,003 5,164
Temporary cash investments ................................ 17,795 27,395
Accounts and notes receivable-net ......................... 99,377 102,389
Materials and supplies, fuel stock and natural gas stored . 33,196 38,004
Prepayments and other ..................................... 16,149 11,020
---------- ----------
Total current assets .................................... 175,520 183,972
---------- ----------
DEFERRED CHARGES:
Regulatory assets for deferred income tax ................. 165,923 169,432
Conservation programs ..................................... 58,927 62,793
Prepaid power purchases ................................... 34,272 32,605
Unamortized debt expense .................................. 23,465 25,684
Other-net ................................................. 24,555 39,541
---------- ----------
Total deferred charges .................................. 307,142 330,055
---------- ----------
TOTAL ................................................. $2,114,545 $2,098,902
========== ==========
CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements of Capitalization) $1,561,999 $1,590,412
---------- ----------
CURRENT LIABILITIES:
Accounts payable .......................................... 59,059 64,841
Taxes and interest accrued ................................ 51,935 39,415
Other ..................................................... 60,239 54,915
---------- ----------
Total current liabilities ............................... 171,233 159,171
---------- ----------
NON-CURRENT LIABILITIES AND DEFERRED CREDITS:
Non-current liabilities ................................... 30,398 9,788
Deferred income taxes ..................................... 306,636 307,529
Other ..................................................... 44,279 32,002
---------- ----------
Total deferred credits .................................. 381,313 349,319
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
TOTAL ................................................. $2,114,545 $2,098,902
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CAPITALIZATION
The Washington Water Power Company
- --------------------------------------------------------------------------------
Thousands of Dollars
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
COMMON EQUITY:
Common stock, no par value: 200,000,000 shares authorized:
shares outstanding: 1996-55,960,360; 1995-55,947,967 ....................... $ 594,853 $ 594,636
Note receivable from employee stock ownership plan ........................... (11,186) (11,690)
Capital stock expense and other paid in capital .............................. (10,103) (10,072)
Unrealized investment gain-net ............................................... 10,134 19,220
Retained earnings ............................................................ 136,154 125,031
----------- -----------
Total common equity ...................................................... 719,852 717,125
----------- -----------
PREFERRED STOCK-CUMULATIVE: (Note 1)
10,000,000 shares authorized:
Not subject to mandatory redemption:
Flexible Auction Series J; 500 shares outstanding ($100,000 stated value) .. 50,000 50,000
----------- -----------
Total not subject to mandatory redemption ................................ 50,000 50,000
----------- -----------
Subject to mandatory redemption:
$8.625, Series I; 300,000 and 500,000 shares outstanding ($100 stated value) 30,000 50,000
$6.95, Series K; 350,000 shares outstanding ($100 stated value) ........... 35,000 35,000
----------- -----------
Total subject to mandatory redemption .................................... 65,000 85,000
----------- -----------
LONG-TERM DEBT: (Note 1)
First Mortgage Bonds:
7 1/8% due December 1, 2013 ................................................ 66,700 66,700
7 2/5% due December 1, 2016 ................................................ 17,000 17,000
Secured Medium-Term Notes:
Series A - 5.95% to 8.06% due 2000 through 2023 .......................... 230,000 250,000
Series B - 6.50% to 8.25% due 1997 through 2010 .......................... 141,000 141,000
----------- -----------
Total first mortgage bonds ............................................... 454,700 474,700
----------- -----------
Pollution Control Bonds:
6% Series due 2023 ......................................................... 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.58% due 1997 through 2007 ............................ 72,500 72,500
Series B - 6.75% to 8.55% due 1999 through 2023 ............................ 120,000 135,000
----------- -----------
Total unsecured medium-term notes ........................................ 192,500 207,500
----------- -----------
Notes payable (due within one year) to be refinanced ......................... 41,500 29,500
Other ........................................................................ 34,347 22,487
----------- -----------
Total long-term debt ..................................................... 727,147 738,287
----------- -----------
TOTAL CAPITALIZATION ............................................................ $ 1,561,999 $ 1,590,412
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30
Thousands of Dollars
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................... $ 69,241 $ 54,503
NON-CASH REVENUES AND EXPENSES
INCLUDED IN NET INCOME:
Depreciation and amortization .......................................... 53,345 46,656
Provision for deferred income taxes .................................... 6,140 1,805
Allowance for equity funds used during construction .................... (567) (624)
Power and natural gas cost deferrals and amortization .................. 5,510 11,741
Deferred revenues and other-net ........................................ 7,560 9,114
(Increase) decrease in working capital components:
Receivables and prepaid expenses-net ................................. 6,139 11,467
Materials & supplies, fuel stock and natural gas stored ............. 6,275 (7,798)
Payables and other accrued liabilities .............................. 1,890 3,483
Other-net ........................................................... 8,365 (16,594)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... 163,898 113,753
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) ................. (60,804) (51,527)
Other capital requirements ............................................... (590) (523)
(Increase) decrease in other noncurrent balance sheet items-net .......... 15,244 10,961
Assets acquired and investments in subsidiaries (Note 3) ................. (29,016) (947)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ....................................... (75,166) (42,036)
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings ............................. 12,000 (43,500)
Proceeds from issuance of long-term debt ................................. -- 58,000
Redemption and maturity of long-term debt ................................ (35,000) (45,000)
Redemption of preferred stock ............................................ (20,000) --
Sale of common stock-net ................................................. 720 9,761
Other-net ................................................................ 15,539 (3,157)
--------- ---------
NET FINANCING ACTIVITIES BEFORE CASH DIVIDENDS .............................. (26,741) (23,896)
Less cash dividends paid .............................................. (58,152) (49,088)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES ....................................... (84,893) (72,984)
--------- ---------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ........................ 3,839 (1,267)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 5,164 5,178
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 9,003 $ 3,911
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period:
Interest ............................................................... $ 39,898 $ 34,918
Income taxes ........................................................... $ 32,668 $ 26,356
Non-cash financing and investing activities .............................. $ 42,762 $ 14,654
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
<PAGE> 8
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Three Months Ended September 30
Thousands of Dollars
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Electric ..................................... $ 156,038 $ 116,564
Natural gas .................................. 22,141 24,191
Non-utility .................................. 41,572 17,114
----------- -----------
Total operating revenues ................... $ 219,751 $ 157,869
=========== ===========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased ............................ $ 49,740 $ 23,061
Fuel for generation ........................ 13,902 12,612
Other electric ............................. 22,240 19,784
Natural gas:
Natural gas purchased for resale ........... 13,388 15,736
Other natural gas .......................... 4,791 4,268
Non-utility .................................. 31,743 9,395
----------- -----------
Total operations and maintenance expenses .. $ 135,804 $ 84,856
=========== ===========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric ..................................... $ 11,958 $ 9,183
Natural gas .................................. 3,614 2,735
Non-utility .................................. 3,750 2,926
----------- -----------
Total administrative and general expenses .. $ 19,322 $ 14,844
=========== ===========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric ..................................... $ 12,830 $ 12,401
Natural gas .................................. 2,624 2,415
Non-utility .................................. 2,616 775
----------- -----------
Total depreciation and amortization expenses $ 18,070 $ 15,591
=========== ===========
INCOME FROM OPERATIONS:
Electric ..................................... $ 36,282 $ 29,986
Natural gas .................................. (3,876) (2,145)
Non-utility .................................. 3,221 3,724
----------- -----------
Total income from operations ............... $ 35,627 $ 31,565
=========== ===========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations ........................... $ 10,492 $ 5,927
Non-utility operations ....................... 6,080 2,691
----------- -----------
Total income available for common stock .... $ 16,572 $ 8,618
=========== ===========
ASSETS: (1995 amounts at December 31)
Electric ..................................... $ 1,456,881 $ 1,440,560
Natural gas .................................. 267,784 274,408
Common plant ................................. 28,763 28,104
Other utility assets ......................... 97,164 129,319
Non-utility assets ........................... 263,953 226,511
----------- -----------
Total assets ............................... $ 2,114,545 $ 2,098,902
=========== ===========
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Electric ..................................... $ 12,778 $ 11,100
Natural gas .................................. 9,030 6,730
Common plant ................................. 1,569 3,081
Non-utility .................................. 454 349
----------- -----------
Total capital expenditures ................. $ 23,831 $ 21,260
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
8
<PAGE> 9
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30
Thousands of Dollars
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
OPERATING REVENUES:
Electric ..................................... $ 443,886 $ 345,454
Natural gas .................................. 112,720 118,631
Non-utility .................................. 107,049 50,685
---------- ----------
Total operating revenues ................... $ 663,655 $ 514,770
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased ............................ $ 115,836 $ 61,551
Fuel for generation ........................ 27,610 23,371
Other electric ............................. 66,639 55,700
Natural gas:
Natural gas purchased for resale ........... 63,457 72,502
Other natural gas .......................... 13,474 11,830
Non-utility .................................. 80,422 28,148
---------- ----------
Total operations and maintenance expenses .. $ 367,438 $ 253,102
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric ..................................... $ 35,512 $ 29,322
Natural gas .................................. 11,426 9,269
Non-utility .................................. 10,330 9,285
---------- ----------
Total administrative and general expenses .. $ 57,268 $ 47,876
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric ..................................... $ 38,393 $ 36,868
Natural gas .................................. 7,911 7,274
Non-utility .................................. 7,041 2,514
---------- ----------
Total depreciation and amortization expenses $ 53,345 $ 46,656
========== ==========
INCOME FROM OPERATIONS:
Electric ..................................... $ 129,687 $ 109,352
Natural gas .................................. 9,715 11,103
Non-utility .................................. 8,559 9,687
---------- ----------
Total income from operations ............... $ 147,961 $ 130,142
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations ........................... $ 44,153 $ 40,024
Non-utility operations ....................... 18,890 7,616
---------- ----------
Total income available for common stock .... $ 63,043 $ 47,640
========== ==========
ASSETS: (1995 amounts at December 31)
Electric ..................................... $1,456,881 $1,440,560
Natural gas .................................. 267,784 274,408
Common plant ................................. 28,763 28,104
Other utility assets ......................... 97,164 129,319
Non-utility assets ........................... 263,953 226,511
---------- ----------
Total assets ............................... $2,114,545 $2,098,902
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Electric ..................................... $ 32,183 $ 30,894
Natural gas .................................. 20,435 16,735
Common plant ................................. 6,180 5,582
Non-utility .................................. 1,603 1,130
---------- ----------
Total capital expenditures ................. $ 60,401 $ 54,341
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
9
<PAGE> 10
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of The Washington Water Power Company
(Company) for the interim periods ended September 30, 1996 and 1995 are
unaudited but, in the opinion of management, reflect all adjustments, consisting
only of normal recurring accruals, necessary for a fair statement of the results
of operations for those interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the full year. These financial statements do not contain the detail or footnote
disclosure concerning accounting policies and other matters which would be
included in full fiscal year financial statements; therefore, they should be
read in conjunction with the Company's audited financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
NOTE 1. FINANCINGS
Reference is made to the information relating to financings and borrowings as
discussed under the caption "Liquidity and Capital Resources" in Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 2. COMMITMENTS AND CONTINGENCIES
NEZ PERCE TRIBE
On December 6, 1991, the Nez Perce Tribe filed an action against the Company in
U. S. District Court for the District of Idaho alleging, among other things,
that two dams formerly operated by the Company, the Lewiston Dam on the
Clearwater River and the Grangeville Dam on the South Fork of the Clearwater
River, provided inadequate passage to migrating anadromous fish in violation of
rights under treaties between the Tribe and the United States made in 1855 and
1863. The Lewiston and Grangeville Dams, which had been owned and operated by
other utilities under hydroelectric licenses from the Federal Power Commission
(the "FPC", predecessor of the Federal Energy Regulatory Commission (FERC))
prior to acquisition by the Company, were acquired by the Company in 1937 with
the approval of the FPC, but were dismantled and removed in 1973 and 1963,
respectively. The Tribe initially indicated through expert opinion disclosures
that they were seeking actual and punitive damages of $208 million. However,
supplemental disclosures reflect allegations of actual loss under different
assumptions of between $425 million and $650 million, together with $100 million
in punitive damages.
On November 21, 1994, the Company filed a Motion for Summary Judgment of
Dismissal. The Nez Perce Tribe filed a reply brief and requested oral argument.
A hearing on the Company's Motion for Summary Judgment was held by the Court on
July 27, 1995. On September 22, 1995, the federal magistrate issued a written
opinion recommending to the District Court that the Company's Motion for Summary
Judgment be granted and the Tribe's claims dismissed. On March 28, 1996, a U.S.
District judge entered a summary judgment in favor of the Company dismissing the
complaint. The Tribe filed a notice of appeal to the Ninth Circuit Court of
Appeals on April 24, 1996. A briefing schedule requiring the Tribe to file its
opening brief on August 7, 1996, and the Company's reply within 30 days, has
been vacated by Order dated August 7, 1996, to accommodate a mediation
conference held on October 11, 1996. Following the conclusion of that
conference, briefing schedules were vacated indefinitely to accommodate a
mediation process. A status conference has been requested by the Ninth Circuit
Mediator on January 10, 1997. The Company is presently unable to assess the
likelihood of an adverse outcome in this litigation, or estimate an amount or
range of potential loss in the event of an adverse outcome.
OIL SPILL
The Company completed an updated investigation of an oil spill from an
underground storage tank that occurred several years ago in downtown Spokane at
the site of the Company's steam heat plant. The Company purchased the plant in
1916 and operated it as a non-regulated plant until it was deactivated in 1986
in a business decision unrelated to the spill. After the Bunker C fuel oil spill
was discovered in 1982, initial studies suggested that the oil was being
adequately contained by both geological features and man-made structures. The
Washington State Department of Ecology (DOE) concurred with these findings.
However, more recent tests in 1993 showed that the oil had migrated
approximately one city block beyond the steam plant property. On December 6,
1993, the
10
<PAGE> 11
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
Company asked the DOE to enter into negotiations for a Consent Decree which
provided for additional remedial investigation and a feasibility study. The
Consent Decree, entered on November 8, 1994, provided for 22 additional soil
borings to be made around the site, which have been completed. The Company
completed a remedial investigation/feasibility study (RI/FS) report, which was
submitted to the DOE in November 1995. The DOE issued a responsiveness summary
in April 1996 which presented the DOE and public comments on the RI/FS. The DOE
prepared an Amended Consent Decree and Draft Cleanup Action Plan (DCAP) for
public review and comment on August 26, 1996. Public comments were received
through October 24, 1996. A responsiveness summary will be prepared and a final
cleanup action plan will be issued. The Amended Consent Decree will then be
entered by the Superior Court in Spokane, probably in December, 1996. It is
anticipated that the cleanup action plan will become final by the end of 1996.
The oil spill cleanup design will begin once approval is received. Construction
may commence as early as the spring of 1997 and will extend through 1997. As of
September 30, 1996, an accrual of $3.1 million is reflected on the Company's
financial statements, which represents the Company's best estimate of its
uninsured liability.
On August 17, 1995, a lawsuit was filed against the Company in Superior Court of
the State of Washington for Spokane County by Davenport Sun International Hotels
and Properties, Inc., the owner of a hotel property in downtown Spokane,
Washington. The Complaint alleged that the oil released from the Company's
Central Steamplant trespassed on property owned by the plaintiff. In addition,
the plaintiff claimed that the Steamplant caused a diminution of value of
plaintiff's land. Generally, the Complaint was based on a claim of negligence,
trespass and nuisance. After mediation, the matter was resolved by settlement
and compromise, subject to certain conditions. If the settlement agreement fails
or is terminated, the Company is presently unable to assess the likelihood of an
adverse outcome in this litigation, or estimate an amount or range of potential
loss in the event of an adverse outcome.
FIRESTORM
On October 16, 1991, gale-force winds struck a five-county area in eastern
Washington and a seven-county area in northern Idaho. These winds were
responsible for causing 92 separate wildland fires, resulting in two deaths and
the loss of 114 homes and other structures, some of which were located in the
Company's service territory. Five separate class action lawsuits have been filed
against the Company by private individuals in the Superior Court for Spokane
County. These suits concern fires identified as Midway, Golden Cirrus, Nine
Mile, Ponderosa and Chattaroy. All of these suits were certified as class
actions on September 16, 1994, and bifurcated for trial of liability and damage
issues by order of the same date. The Company's Motion for Reconsideration was
denied on October 21, 1994, and a Motion for Discretionary Review of the Court's
decision on certification of class actions was timely filed with the Washington
Court of Appeals (Division III) on November 14, 1994.
The Company was also served with two suits in Spokane County Superior Court
filed on April 20, 1994 and on September 15, 1994, both of which sought
individual damages from separate fires within the Chattaroy Fire complex, and
for alleged wrongful death of two persons. Five additional and separate suits
were brought by Grange Insurance Company, and were filed in Spokane County
Superior Court on October 10, 1994, for approximately $2.2 million paid to
Grange insureds for the same fire areas.
Complainants in all cases allege various theories of tortious conduct, including
negligence, creation of a public nuisance, strict liability and trespass; in
most cases, complainants allege that fires were caused by electric distribution
and/or transmission lines downed by wind-downed trees. The lawsuits seek
recovery for property damage, emotional and mental distress, lost income and
punitive damages, but do not specify the amount of damages being sought. Ongoing
discovery is limited due to a stay of the proceedings pending review by the
Washington Supreme Court of a trial court decision ordering the disqualification
of plaintiff's counsel. By Final Order, the Washington Supreme Court remanded
the issue for hearing on appropriate sanctions other than disqualification. A
Status and Scheduling Conference was held on November 4, 1996 and resulted in an
appointment of a Discovery Master. Hearing was also set on a variety of pending
motions, including a motion by plaintiffs to consolidate all liability trials to
be heard on January 27, 1997. Still pending is a Motion for Discretionary Review
before the Washington Court of Appeals (Div. III) on class certification issues,
which is anticipated for hearing in February 1997. Trial date(s) are anticipated
in the fall of 1997. The Company has received a settlement demand for settlement
of class action litigation which is within the Company's insurance coverage
limits. The Company was previously presented with a claim from the Washington
State Department of Natural Resources (DNR) for fire suppression costs
associated with five of these fires in eastern Washington. The
11
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THE WASHINGTON WATER POWER COMPANY
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total of the DNR claim was $1.0 million. On July 22, 1993, the Company entered
into a settlement with the DNR whereby the Company agreed to pay $200,000 to DNR
in full settlement of any and all DNR claims; however, there was no admission of
liability on the part of the Company. The Company is presently unable to assess
the likelihood of an adverse outcome or estimate an amount or range of potential
loss in the event of an adverse outcome.
WILLIAMS LAKE LAWSUIT
On December 21, 1995, a lawsuit was commenced in Vancouver, British Columbia
against the Company's subsidiary, Pentzer Corporation (Pentzer), by Tondu Energy
Systems, Inc. and T.E.S. Williams Lake Partnership alleging contract violations,
conspiracy, misrepresentation and breach of fiduciary duties in regard to the
1993 sale of assets of Pentzer Energy Services, Inc. to B.C. Gas, Inc. and a
U.S. subsidiary of B.C. Gas. The claims involve an alleged first right to
purchase interests in the Williams Lake, British Columbia wood-fired generating
station. The suit seeks damages in excess of $10 million, plus exemplary
damages, prejudgment interest, costs and attorneys' fees. Also named as
defendants are B.C. Gas, Inc., Inland Pacific Energy (Williams Lake) Corp.,
Pentzer Energy Services, Inc. and WP Energy Company. This action originally had
been filed in February 1995 in Spokane Superior Court against each of the same
defendants and Washington Water Power. By order dated June 6, 1995, all claims
against Washington Water Power were dismissed with prejudice by that court and
the claims against the remaining defendants were dismissed without prejudice on
the grounds that the lawsuit should have been brought in British Columbia. The
Company is presently unable to assess the likelihood of an adverse outcome, or
estimate an amount or range of potential loss in the event of an adverse
outcome.
OTHER CONTINGENCIES
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation of
contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and recoveries from insurance carriers. The Company's policy is to
immediately accrue and charge to current expense identified exposures related to
environmental remediation sites based on estimates of investigation, cleanup and
monitoring costs to be incurred.
The Company has long-term contracts related to the purchase of fuel for thermal
generation, natural gas and hydroelectric power. Terms of the natural gas
purchase contracts range from one month to five years and the majority provide
for minimum purchases at the then effective market rate. The Company also has
various agreements for the purchase, sale or exchange of electric energy with
other utilities, cogenerators, small power producers and government agencies.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
In March 1996, Pentzer Development Corporation, a subsidiary of Pentzer, sold
the Spokane Industrial Park, resulting in a gain of approximately $10.8 million,
net of taxes and other adjustments. In May 1996, Pentzer acquired F. O. Phoenix,
a New Jersey-based company that provides point-of-purchase and in-store
merchandising services.
NOTE 4. MERGER TERMINATION
As previously reported, on June 28, 1996, the Board of Directors of the Company
terminated the Agreement and Plan of Reorganization and Merger, dated as of June
27, 1994 by and among the Company, Sierra Pacific Resources (SPR), Sierra
Pacific Power Company, a subsidiary of SPR (SPPC), and Altus Corporation, a
wholly owned subsidiary of the Company (Altus, formerly named Resources West
Energy Corporation), which would have provided for the merger of the Company,
SPR and SPPC with and into Altus. The Company had approximately $15.8 million in
merger-related transaction and transition costs that were expensed in 1996. The
merger-related costs expensed in the second quarter as operating charges were
reclassified as non-operating expenses in the third quarter. No increase in
rates will occur as a result of these costs being expensed.
12
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THE WASHINGTON WATER POWER COMPANY
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is primarily engaged as a utility in the generation, purchase,
transmission, distribution and sale of electric energy and the purchase,
transportation, distribution and sale of natural gas. Natural gas operations are
affected to a significant degree by weather conditions and customer growth. The
Company's electric operations are highly dependent upon hydroelectric generation
for its power supply. As a result, the electric operations of the Company are
significantly affected by weather and streamflow conditions, and to a lesser
degree, by customer growth. Revenues from new wholesale contracts and the sale
of surplus energy to other utilities and the cost of power purchases vary from
year to year depending on streamflow conditions and the wholesale power market.
The wholesale power market in the Northwest region is affected by several
factors, including the availability of water for hydroelectric generation, the
availability of base load plants in the region and the demand for power in the
Southwest region. Other factors affecting the wholesale power market include new
entrants in the wholesale market, such as power brokers and marketers, and
competition from low cost generation being developed by independent power
producers. Usage by retail customers varies from year to year primarily as a
result of weather conditions, the economy in the Company's service area,
customer growth, conservation, appliance efficiency and other technology.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
Overall earnings per share for the third quarter of 1996 increased to $0.30 from
$0.16 in 1995. The increase in earnings was primarily due to improved electric
results, as a result of increased sales from the wholesale electric business.
Retail electric sales also increased, primarily as a result of weather. The
increase in earnings was also the result of a $4.7 million after-tax
transactional gain from the sale of Itron, Inc. (Itron) stock by Pentzer
Corporation (Pentzer).
Overall earnings per share for the first nine months of 1996 increased to $1.13
from $0.87 in 1995. The increase in earnings was primarily the result of a $10.8
million transactional gain, net of tax and other adjustments, from the sale of
property held for sale by one of Pentzer's subsidiaries and a $4.7 million
after-tax transactional gain from Pentzer's sale of a portion of its Itron
stock. The increase in earnings was also due to improved utility results, as a
result of increased sales, due primarily to the growing wholesale electric
business and to increased retail sales to electric customers due to weather
conditions. Year-to-date earnings also reflect the expensing of $15.8 million,
or $0.18 per share on an after-tax basis, in merger transaction and transition
costs that occurred as a result of the termination of the Agreement and Plan of
Reorganization and Merger which would have provided for the merger of the
Company, Sierra Pacific Resources and Sierra Pacific Power Company, a subsidiary
of SPR, with and into Altus Corporation, a wholly owned subsidiary of the
Company (Altus, formerly named Resources West Energy Corporation). The
merger-related costs expensed in the second quarter as operating charges were
reclassified as non-operating expenses in the third quarter. (See Note 4 to the
Financial Statements for additional information about the merger termination.)
Utility income available for common stock contributed $0.19 to earnings per
share for the third quarter of 1996 compared to $0.11 in the third quarter of
1995. Non-utility income available for common stock contributed $0.11 to
earnings per share for the third quarter of 1996 compared to $0.05 in the same
period in 1995. Utility income available for common stock contributed $0.79 to
earnings per share for the first nine months of 1996 compared to $0.73 in the
same period in 1995. Non-utility income available for common stock contributed
$0.34 to earnings per share for the first nine months of 1996 compared to $0.14
in the same period in 1995.
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THE WASHINGTON WATER POWER COMPANY
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UTILITY OPERATIONS
OPERATING REVENUES
Electric operating revenues increased $39.5 million in the third quarter of 1996
over 1995. Wholesale revenues totaled $63.5 million in the third quarter of
1996, an increase of $33.5 million over 1995, as a result of new firm wholesale
contracts and increased spot market sales, partly the result of improved
streamflow conditions which led to the increased availability of hydroelectric
generation in the region. Hydroelectric generation was 123% of normal, due to
streamflows which were 125% of normal during the third quarter of 1996.
Wholesale kWh sales were more than three times greater in the third quarter of
1996 as compared to 1995, which offset the decline of 34% in average prices in
the third quarter of 1996. Other revenues increased $2.2 million from the third
quarter of 1995 as a result of transmission revenues associated with new
wholesale contracts. Residential and commercial revenues rose by a combined $3.2
million in the third quarter of 1996 due partially to weather that was warmer
than normal in August, which increased air conditioning load, and colder than
normal during September, which increased heating load, and customer growth.
Industrial revenues increased $0.5 million in the third quarter of 1996 compared
to the same period in 1995 due primarily to customer growth.
Electric operating revenues increased $98.4 million in the first nine months of
1996 over 1995. Wholesale revenues totaled $153.7 million in the first nine
months of 1996, an increase of $83.3 million from the same period in 1995, as a
result of new firm wholesale contracts and increased spot market sales, partly
due to improved streamflow conditions which led to the increased availability of
hydroelectric generation in the region. Hydroelectric generation was 127% of
normal, due to streamflows which were 145% of normal during the first nine
months of 1996. Wholesale kWh sales during the first nine months of 1996 more
than tripled from the same period in 1995, which more than offset the decline of
35% in average prices during 1996. Year-to-date, other revenues increased $2.5
million in 1996 over 1995 due to increased transmission revenues associated with
new wholesale contracts. Residential and commercial revenues rose by a combined
$11.2 million in the first nine months of 1996 as a result of increased customer
usage primarily due to temperature variations that affected energy sales for
space heating and cooling during various months in 1996 and a 2.7% growth in
residential and commercial customers. Year-to-date 1996, industrial revenues
increased $1.5 million from the previous year due largely to increased sales as
a result of customer growth.
Total natural gas revenues decreased $2.1 million in the third quarter of 1996
compared to the same period in 1995, primarily due to a $1.8 million decrease in
non-retail sales and decreases in natural gas prices. Purchased gas cost
adjustments effective in Washington, Idaho and Oregon during December 1995
decreased the rates paid by customers by 13.58%, 16.68% and 5.82%, respectively.
Weather 26% colder than normal during September 1996 increased therm sales,
which partially offset the decrease in residential and commercial revenues due
to lower prices. The decrease in revenues from non-retail sales was offset by
like decreases in purchased gas expense. The number of natural gas customers
increased 5.3% in the third quarter of 1996 as compared to 1995.
Total natural gas revenues decreased $5.9 million in the first nine months of
1996 compared to the same period in 1995, primarily due to a $3.6 million
decrease in non-retail sales and the price decreases mentioned above. These
decreases were partially offset by increased usage from residential and
commercial customers, primarily during the first quarter and September of 1996
due to colder than normal weather.
OPERATING EXPENSES
Total operating expenses increased by $33.2 million for electric operations and
decreased by $0.3 million for natural gas operations during the third quarter of
1996 compared to 1995. For the first nine months of 1996, total operating
expenses increased by $78.1 million for electric operations and decreased by
$4.5 million for natural gas operations from 1995.
Commitments under new firm wholesale sales contracts and increased spot market
sales resulted in a $26.7 million increase in electric purchased power costs
during the third quarter of 1996. New firm wholesale contracts and increased
spot market sales, combined with increased electric retail sales as a result of
increased customer usage due to temperature variations that affected energy
sales for space heating and cooling during various months in
14
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THE WASHINGTON WATER POWER COMPANY
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1996, caused a $54.3 million increase in electric purchased power costs during
the first nine months of 1996 as compared to 1995.
Fuel costs increased $1.3 million and $4.2 million in the third quarter of 1996
and year-to-date, respectively, compared to 1995 as a result of higher
generation at thermal plants during 1996. The increase in generation in both
periods of 1996 was primarily the result of increased wholesale sales during the
current year.
Purchased gas costs decreased $2.3 million during the third quarter of 1996 and
$9.0 million year-to-date primarily as a result of decreases in non-retail and
industrial sales, sales of natural gas to the Rathdrum turbine and lower natural
gas prices.
Other operating and maintenance expenses increased by $2.5 million, or 12%, for
electric operations and $0.5 million, or 12%, for natural gas operations during
the third quarter of 1996. The increased electric expenses were the result of a
$1.3 million increase in transmission expenses due to the increased energy the
Company purchased from other sources and a $0.5 million increase in the Idaho
Power Cost Adjustment (PCA). Other operating and maintenance expenses increased
by $10.9 million, or 20%, for electric operations and $1.6 million, or 14%, for
natural gas operations during the first nine months of 1996. The increased
electric expenses were the result of a $7.5 million increase in the Idaho PCA
and a $1.8 million increase in transmission expenses due to the increased energy
the Company purchased from other sources. Both electric and natural gas
operations were also affected by increased expenses related to amortization of
the Demand Side Management programs and increases in uncollectible accounts and
other expenses related to customer services during both the quarter and
year-to-date periods.
Administrative and general expenses increased $3.7 million in the third quarter
of 1996, primarily due to increases in labor-related costs and development of a
financial information system. Administrative and general expenses increased $8.3
million in the first nine months of 1996 primarily due to a $1.6 million
write-off of regulatory deferrals of pension expenses, increases in
labor-related costs and development of a financial information system.
Taxes other than income increased by $0.9 million for electric operations during
the first nine months of 1996 primarily due to increased accruals for property
taxes, based on higher assessed values of property, and increased generation
taxes in Idaho and Montana due to improved streamflows and higher hydroelectric
generation.
Income taxes decreased by $0.9 million and $0.2 million for electric and natural
gas operations, respectively, in the third quarter of 1996 compared to 1995, due
to a $2.6 million adjustment resulting from the resolution of 1993/1994 tax
audit issues, partially offset by increased income taxes on electric operations
due to increased operating income in 1996. Income taxes on electric operations
increased by $5.2 million in the first nine months of 1996 compared to 1995, as
a result of increased electric operating income year-to-date, partially offset
by the income tax adjustment in the third quarter of 1996. Income taxes on
natural gas operations decreased $0.7 million in the first nine months of 1996
compared to 1995, as a result of decreased natural gas operating income
year-to-date and the income tax adjustment.
15
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THE WASHINGTON WATER POWER COMPANY
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NON-UTILITY OPERATIONS
Non-utility operations include the results of Pentzer and other subsidiaries
directly owned by the Company. Pentzer's business strategy is to acquire
controlling interests in a broad range of middle-market companies, to help these
companies grow through internal development and strategic acquisitions and to
sell the portfolio investments either to the public or to strategic buyers when
it becomes most advantageous in meeting Pentzer's return on invested capital
objectives. Pentzer's goal is to produce financial returns for the Company's
shareholders that, over the long-term, should be higher than those of the
utility operations. From time to time, a significant portion of Pentzer's
earnings contributions may be the result of transactional gains. Accordingly,
although the income stream is expected to be positive, it may be uneven from
year to year.
Non-utility operating revenues and expenses increased by $24.5 million and $25.0
million, respectively, in the third quarter of 1996 and by $56.4 million and
$57.5 million, respectively, in the first nine months of 1996 over the previous
year, primarily as a result of Pentzer's acquisitions.
Pentzer's earnings for the third quarter of 1996 exceeded 1995 by $4.1 million
primarily due to the $4.7 million after-tax transactional gain from the sale of
a portion of Pentzer's Itron stock. There were no transactional gains during the
third quarter of 1995. Non-transactional earnings were lower than 1995 by $0.5
million due to reduced earnings from Pentzer Development Corporation as a result
of the sale of Spokane Industrial Park earlier in the year. Total income
available for common stock from non-utility operations increased to $6.1 million
from $2.7 million in the third quarter of 1995.
Pentzer's earnings for the first nine months of 1996 were greater than 1995 by
$12.5 million primarily due to the impact of after-tax transactional gains of
$10.8 million from the sale of Spokane Industrial Park in the first quarter of
1996 and the $4.7 million from the sale of Itron stock. Transactional gains in
the first quarter of 1995 were $1.3 million, net of tax, from the sale of a
portion of Itron stock owned by Pentzer. Total income available for common stock
from non-utility operations increased to $18.9 million during the first nine
months of 1996 compared to $7.6 million in the same period in 1995.
16
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THE WASHINGTON WATER POWER COMPANY
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LIQUIDITY AND CAPITAL RESOURCES
UTILITY
The Company funds its utility capital expenditures with a combination of
internally-generated cash and external financing. The level of cash generated
internally and the amount that is available for capital expenditures fluctuates
annually. Cash provided by operating activities remains the Company's primary
source of funds for operating needs, dividends and capital expenditures.
Operating Activities Cash available from operating activities in the first nine
months of 1996 increased by $50.0 million from the same period in 1995 primarily
due to a $14.7 million increase in net income and changes in various working
capital components, such as decreases in materials and supplies, fuel stock and
natural gas stored, prepayments on power contracts and payables, partially
offset by an increase in receivables and a decrease in power and natural gas
cost deferrals. See the Consolidated Statements of Cash Flows for additional
details.
Investing Activities Cash used in investing activities increased by $37.0
million in the first nine months of 1996, when compared to the same period in
1995, primarily due to the purchase of a new company by Pentzer and the
Company's purchase of common stock in newly formed WWP subsidiaries. Cash used
in investing activities also increased as a result of establishment of trusts
for postretirement medical benefits and coal reclamation costs and the net
effect on cash flows of transactions related to the sale of property by Pentzer.
A portion of the purchase price on the sale of Spokane Industrial Park resulted
in the receipt of a note receivable. See the Consolidated Statements of Cash
Flows for additional information.
Financing Activities Cash used in financing activities decreased by
approximately $11.9 million in the first nine months of 1996 when compared to
the same period in 1995. Bank borrowings increased by $12.0 million in the first
nine months of 1996. To-date in 1996, $15 million of Unsecured Medium-Term Notes
(MTNs) and $20 million of Secured MTNs matured and $20 million of Preferred
Stock Series I was redeemed, primarily funded by a combination of increased cash
generated by operating activities during the first quarter of 1996 and increased
short-term bank borrowings. The only securities issued in the first nine months
of 1996 were approximately 12,000 shares of common stock for $0.2 million in
proceeds from the Company's Dividend Reinvestment Plan. The Company is now
purchasing shares in the open market to fulfill the requirements of the Dividend
Reinvestment and employee benefit plans.
In November 1996, the Company and its newly formed Trusts will file a
Registration Statement with the Securities and Exchange Commission for
authorization to issue up to and including $150 million of any combination of
Subordinated Debt Securities of the Company and Preferred Securities of the
Trust guaranteed by the Company, in one or more series and amounts, at prices
and on terms to be determined at the time of the offering.
Capital expenditures are financed on an interim basis with short-term debt. The
Company has $160 million in committed lines of credit, with $29.5 million
outstanding at September 30, 1996. In addition, the Company may borrow up to $60
million through other borrowing arrangements with banks. As of September 30,
1996, $12.0 million was outstanding under the other borrowing arrangements with
banks.
During the 1996-1998 period, utility capital expenditures are expected to be
$237 million, and $90 million will be required for long-term debt maturities and
preferred stock sinking fund requirements. During this three-year period, the
Company estimates that internally-generated funds will provide approximately 95%
of the funds needed for its capital expenditure program. Minimal amounts of
external financing will be required to fund maturing long-term debt, preferred
stock sinking fund requirements and the remaining portion of capital
expenditures. These estimates of capital expenditures are subject to continuing
review and adjustment. Actual capital expenditures may vary from these estimates
due to factors such as changes in business conditions, construction schedules
and environmental requirements.
NON-UTILITY
The non-utility operations have $44 million in short-term borrowing arrangements
available ($32.2 million outstanding as of September 30, 1996) to fund corporate
requirements on an interim basis. At September 30, 1996,
17
<PAGE> 18
THE WASHINGTON WATER POWER COMPANY
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the non-utility operations had $28.4 million in cash and marketable securities
with $44.9 million in long-term debt outstanding.
The 1996-1998 non-utility capital expenditures are expected to be $6 million,
and $21 million in debt maturities will also occur. During the next three years,
internally-generated cash and other debt obligations are expected to provide the
majority of the funds for the non-utility capital expenditure requirements.
These estimates of capital expenditures are subject to continuing review and
adjustment. Actual capital expenditures may vary from these estimates due to
factors such as changes in business conditions, acquisitions or sales of
businesses and other transactions.
TOTAL COMPANY
The Company's total common equity increased by $2.7 million during the first
nine months of 1996 to $719.9 million. The increase was primarily due to an
$11.1 million increase in retained earnings, partially offset by a $9.1 million
decrease in unrealized investment gains from Pentzer's investment in Itron and
other marketable securities. The Company's consolidated capital structure at
September 30, 1996, was 47% debt, 7% preferred stock and 46% common equity as
compared to 46% debt, 9% preferred stock and 45% common equity at year-end 1995.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
REGULATORY PROCEEDINGS.
Direct Access Tariff In May, the Company filed with the Washington Utilities and
Transportation Commission (WUTC) and the Idaho Public Utilities Commission
(IPUC) an experimental Direct Access and Delivery Service (DADS) tariff to allow
eligible customers to choose their supplier to serve up to one-third of their
electric load. The only eligible customers are 30 of the Company's largest
customers in the two states. The WUTC approved the tariff in June, effective
September 1, 1996; the IPUC approved the tariff on September 6, 1996, effective
the same day. This trial tariff is effective through August 31, 1998. The tariff
will not affect the rates for other customer classes during or after the
experimental period. The Company intends to absorb any margin losses associated
with loads served on the DADS tariff, but it is not expected to have a material
impact on the Company's financial condition or results of operations.
PCA Tariff In May, the Company filed for tariff revisions with the IPUC to
reflect the expiration of a Power Cost Adjustment (PCA) surcharge and the
implementation of a proposed PCA rebate. The surcharge went into effect on
September 1, 1995 and expired on August 31, 1996. The rate rebate was
approved by the IPUC, effective September 1, 1996 through August 31, 1997. The
combined effect of the surcharge expiration and rebate implementation provides
Idaho residential customers an overall electric rate decrease of 4.77%.
Purchased Gas Adjustment (PGA) In September, the Company filed a request for a
PGA with the IPUC that reflects decreases from the Company's suppliers in the
cost of gas purchased. The IPUC approved the filing, effective November 1, that
will reduce the natural gas rates charged to residential customers by 8.5%.
National Power Marketer Certification In September, the Federal Energy
Regulatory Commission (FERC) approved the Company's application for National
Power Marketer certification. This will allow the Company, or a subsidiary of
the Company, to buy electricity and natural gas for resale to utilities and
other customers throughout the United States.
18
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THE WASHINGTON WATER POWER COMPANY
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ADDITIONAL FINANCIAL DATA.
The following table reflects the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements:
<TABLE>
<CAPTION>
12 Months Ended
September 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
Ratio of Earnings to Fixed Charges 3.41 (x) 3.22 (x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements 2.84 (x) 2.61 (x)
</TABLE>
The Company has long-term purchased power arrangements with various Public
Utility Districts and the interest expense components of these contracts are
included in purchased power expenses. These interest amounts would not have a
material impact on fixed charges ratios.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Dated June 28, 1996, regarding the termination of the Merger
Agreement between the Company, Sierra Pacific Resources,
Sierra Pacific Power Company and Altus Corporation.
19
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THE WASHINGTON WATER POWER COMPANY
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WASHINGTON WATER POWER COMPANY
(Registrant)
Date: November 14, 1996 /s/ J. E. Eliassen
------------------------
J. E. Eliassen
Senior Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
20
<PAGE> 1
EXHIBIT 12
THE WASHINGTON WATER POWER COMPANY
Computation of Ratio of Earnings to Fixed Charges and Preferred Dividend
Requirements Consolidated
(Thousands of Dollars)
<TABLE>
<CAPTION>
12 Mos. Ended Years Ended December 31
September 30, --------------------------------------------------
1996 1995 1994 1993 1992 (1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt $ 59,200 $ 55,580 $ 49,566 $ 47,129 $ 51,727
Amortization of debt expense
and premium - net 3,124 3,441 3,511 3,004 1,814
Interest portion of rentals 4,344 3,962 1,282 924 1,105
-------- -------- -------- -------- --------
Total fixed charges $ 66,668 $ 62,983 $ 54,359 $ 51,057 $ 54,646
======== ======== ======== ======== ========
Earnings, as defined:
Net income from continuing ops $101,860 $ 87,121 $ 77,197 $ 82,776 $ 72,267
Add (deduct):
Income tax expense 58,526 52,416 44,696 42,503 41,330
Total fixed charges above 66,668 62,983 54,359 51,057 54,646
-------- -------- -------- -------- --------
Total earnings $227,054 $202,520 $176,252 $176,336 $168,243
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 3.41 3.22 3.24 3.45 3.08
Fixed charges and preferred dividend requirements:
Fixed charges above $ 66,668 $ 62,983 $ 54,359 $ 51,057 $ 54,646
Preferred dividend requirements (2) 13,319 14,612 13,668 12,615 10,716
-------- -------- -------- -------- --------
Total $ 79,987 $ 77,595 $ 68,027 $ 63,672 $ 65,362
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred dividend requirements 2.84 2.61 2.59 2.77 2.57
</TABLE>
(1) Calculations have been restated to reflect the results from continuing
operations (ie. excluding discontinued coal mining operations).
(2) Preferred dividend requirements have been grossed up to their pre-tax level.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE WASHINGTON WATER POWER COMPANY,
INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,379,998
<OTHER-PROPERTY-AND-INVEST> 251,885
<TOTAL-CURRENT-ASSETS> 175,520
<TOTAL-DEFERRED-CHARGES> 307,142
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,114,545
<COMMON> 583,667
<CAPITAL-SURPLUS-PAID-IN> 31
<RETAINED-EARNINGS> 136,154
<TOTAL-COMMON-STOCKHOLDERS-EQ> 719,852
65,000
50,000
<LONG-TERM-DEBT-NET> 626,907<F1>
<SHORT-TERM-NOTES> 41,500
<LONG-TERM-NOTES-PAYABLE> 28,223
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 34,763
0
<CAPITAL-LEASE-OBLIGATIONS> 5,517
<LEASES-CURRENT> 1,668
<OTHER-ITEMS-CAPITAL-AND-LIAB> 541,115<F2>
<TOT-CAPITALIZATION-AND-LIAB> 2,114,545
<GROSS-OPERATING-REVENUE> 663,655
<INCOME-TAX-EXPENSE> 39,503<F3>
<OTHER-OPERATING-EXPENSES> 515,694
<TOTAL-OPERATING-EXPENSES> 515,694
<OPERATING-INCOME-LOSS> 147,961
<OTHER-INCOME-NET> 8,245
<INCOME-BEFORE-INTEREST-EXPEN> 156,206<F4>
<TOTAL-INTEREST-EXPENSE> 47,461
<NET-INCOME> 69,242
6,199
<EARNINGS-AVAILABLE-FOR-COMM> 63,043
<COMMON-STOCK-DIVIDENDS> 52,043
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 163,898
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<FN>
<F1>LONG-TERM DEBT-NET DOES NOT MATCH THE AMOUNT REPORTED ON THE COMPANY'S
CONSOLIDATED STATEMENT OF CAPITALIZATION AS LONG-TERM DEBT DUE TO THE OTHER
CATEGORIES REQUIRED BY THIS SCHEDULE.
<F2>OTHER ITEMS CAPITAL AND LIABILITIES INCLUDES THE CURRENT LIABILITIES, DEFFERED
CREDITS AND MINORITY INTEREST, LESS CERTAIN AMOUNTS INCLUDED UNDER LONG-TERM
DEBT-CURRENT PORTION AND LEASES-CURRENT, FROM THE COMPANY'S CONSOLIDATED
BALANCE SHEET.
<F3>THE COMPANY DOES NOT INCLUDE INCOME TAX EXPENSE AS AN OPERATING EXPENSE ITEM.
IT IS INCLUDED ON THE COMPANY'S STATEMENTS AS A BELOW-THE-LINE ITEM.
<F4>INCOME BEFORE INTEREST EXPENSE IS NOT A SPECIFIC LINE ITEM ON THE COMPANY'S
INCOME STATEMENTS. THE COMPANY COMBINES TOTAL INTEREST EXPENSE AND OTHER
INCOME TO CALCULATE INCOME BEFORE INCOME TAXES.
</FN>
</TABLE>
