Page 1 of 13
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarter Ended June 30, 1994
Commission file number 1-255-2
WEST PENN POWER COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 13-5480882
(State of Incorporation) (I.R.S. Employer Identification No.)
Cabin Hill, Greensburg, Pennsylvania 15601
Telephone number 412-837-3000
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 and (2) has been subject to such filing requirements for
the past 90 days.
At August 10, 1994, 22,361,586 shares of the Common Stock (no par
value) of the registrant were outstanding, all of which is held by Allegheny
Power System, Inc., the Company's parent.
<PAGE>
- 2 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Form 10-Q for Quarter Ended June 30, 1994
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Consolidated statement of income -
Three and six months ended June 30, 1994 and 1993 3
Consolidated balance sheet - June 30, 1994
and December 31, 1993 4
Consolidated statement of cash flows -
Six months ended June 30, 1994 and 1993 5
Notes to consolidated financial statements 6-7
Management's discussion and analysis of financial
condition and results of operations 8-12
PART II--OTHER INFORMATION 13
<PAGE>
<TABLE>
<CAPTION>
- 3 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Income
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C> <C> <C>
Residential $ 85 685 $ 80 601 $202 610 $177 864
Commercial 49 406 45 468 103 950 92 644
Industrial 80 304 77 764 163 289 152 050
Nonaffiliated utilities 32 739 39 881 81 329 79 879
Other, including affiliates 17 866 16 159 39 653 37 454
Total Operating Revenues 266 000 259 873 590 831 539 891
OPERATING EXPENSES:
Operation:
Fuel 62 730 62 488 135 818 134 308
Purchased power and exchanges, net 56 695 56 158 130 166 113 961
Deferred power costs, net (1 309) 3 077 2 058 2 648
Other 34 950 33 812 71 303 65 619
Maintenance 28 846 25 181 59 176 49 624
Depreciation 22 370 19 915 44 300 39 124
Taxes other than income taxes 20 391 21 617 44 303 45 091
Federal and state income taxes 9 711 8 341 28 590 23 081
Total Operating Expenses 234 384 230 589 515 714 473 456
Operating Income 31 616 29 284 75 117 66 435
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 1 577 1 828 2 660 3 288
Other income, net 3 004 3 509 6 229 6 872
Total Other Income and Deductions 4 581 5 337 8 889 10 160
Income Before Interest Charges 36 197 34 621 84 006 76 595
INTEREST CHARGES:
Interest on long-term debt 13 892 15 323 27 783 30 491
Other interest 510 411 1 046 720
Allowance for borrowed funds used during
construction (950) (1 424) (1 595) (2 574)
Total Interest Charges 13 452 14 310 27 234 28 637
Consolidated Net Income $ 22 745 $ 20 311 $ 56 772 $ 47 958
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
- 4 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
June 30 December 31
1994 1993
(Thousands of Dollars)
ASSETS
Property, Plant, and Equipment:
At original cost, including $334,575,000 and
<S> <C> <C>
$283,779,000 under construction $2 879 875 $2 803 811
Accumulated depreciation (989 638) (962 623)
1 890 237 1 841 188
Investments and Other Assets:
Allegheny Generating Company - common stock
at equity 101 078 102 830
Other 1 558 1 537
102 636 104 367
Current Assets:
Cash and temporary cash investments 449 565
Accounts receivable:
Electric service, net of $2,209,000 and
$1,126,000 uncollectible allowance 91 785 94 570
Affiliated and other 18 848 22 372
Notes receivable from affiliates - 24 900
Materials and supplies - at average cost:
Operating and construction 38 225 36 030
Fuel 39 153 32 892
Prepaid taxes 24 149 10 827
Other 12 861 7 127
225 470 229 283
Deferred Charges:
Regulatory assets 332 396 331 755
Unamortized loss on reacquired debt 11 069 11 645
Other 27 875 26 525
371 340 369 925
Total Assets $2 589 683 $2 544 763
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 425 994 $ 425 994
Other paid-in capital 55 687 55 687
Retained earnings 415 067 412 288
896 748 893 969
Preferred stock - not subject to mandatory redemption 149 708 149 708
Long-term debt 784 245 782 369
1 830 701 1 826 046
Current Liabilities:
Short-term debt 49 747 -
Accounts payable 92 014 105 493
Accounts payable to affiliates 8 390 9 451
Taxes accrued:
Federal and state income 11 010 11 533
Other 11 044 22 823
Interest accrued 13 861 13 855
Other 32 776 20 954
218 842 184 109
Deferred Credits and Other Liabilities:
Unamortized investment credit 54 228 55 524
Deferred income taxes 429 969 424 000
Regulatory liabilities 39 719 40 834
Other 16 224 14 250
540 140 534 608
Total Capitalization and Liabilities $2 589 683 $2 544 763
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
- 5 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Cash Flows
Six Months Ended
June 30
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Consolidated net income $ 56 772 $ 47 958
Depreciation 44 300 39 124
Deferred investment credit and income taxes, net (9 552) (5 041)
Deferred power costs, net 2 058 2 648
Unconsolidated subsidiaries' dividends in
excess of earnings 1 832 2 234
Allowance for other than borrowed funds used
during construction (2 660) (3 288)
Changes in certain current assets and liabilities:
Accounts receivable, net 6 309 1 933
Materials and supplies (8 456) 3 607
Accounts payable (14 540) (19 151)
Taxes accrued (12 302) (8 813)
Interest accrued 6 (387)
Other, net 7 818 3 140
71 585 63 964
CASH FLOWS FROM INVESTING:
Construction expenditures (96 659) (106 315)
Allowance for other than borrowed
funds used during construction 2 660 3 288
(93 999) (103 027)
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 1 644 253 674
Retirement of long-term debt - (107 248)
Deposit with trustee for redemption of long-term debt - (144 166)
Short-term debt, net 49 747 47 000
Notes receivable from affiliates 24 900 20 900
Dividends on capital stock:
Preferred stock (4 127) (4 088)
Common stock (49 866) (40 800)
22 298 25 272
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (116) (13 791)
Cash and Temporary Cash Investments at January 1 565 14 342
Cash and Temporary Cash Investments at June 30 $ 449 $ 551
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 26 230 $ 28 880
Income taxes 31 362 28 438
See accompanying notes to consolidated financial statements.
</TABLE>
- 6 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
1. The Company's Notes to Consolidated Financial Statements in the
Allegheny Power System companies' combined Annual Report on Form 10-K
for the year ended December 31, 1993, should be read with the
accompanying financial statements and the following notes. With
the exception of the December 31, 1993 consolidated balance sheet
in the aforementioned annual report on Form 10-K, the accompanying
consolidated financial statements appearing on pages 3 through 5
and these notes to consolidated financial statements are unaudited.
In the opinion of the Company, such consolidated financial
statements together with these notes thereto contain all
adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the Company's financial position as of
June 30, 1994, the results of operations for the three and six
months ended June 30, 1994 and 1993, and cash flows for the six
months ended June 30, 1994 and 1993.
2. The Consolidated Statement of Income reflects the results of past
operations and is not intended as any representation as to future
results. For purposes of the Consolidated Balance Sheet and
Consolidated Statement of Cash Flows, temporary cash investments
with original maturities of three months or less, generally in the
form of commercial paper, certificates of deposit, and repurchase
agreements, are considered to be the equivalent of cash.
3. The Company owns 45% of the common stock of Allegheny Generating
Company (AGC), and affiliates of the Company own the remainder.
AGC owns an undivided 40% interest, 840 MW, in the 2,100-MW pumped-
storage hydroelectric station in Bath County, Virginia operated by
the 60% owner, Virginia Power Company, an unaffiliated utility.
Following is a summary of income statement information for AGC:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Electric operating revenues $21 869 $23 730 $44 300 $47 153
Operation and maintenance expense 1 444 1 963 3 277 3 641
Depreciation 4 236 4 226 8 472 8 452
Taxes other than income taxes 1 528 1 302 2 868 2 599
Federal income taxes 3 408 3 494 6 921 6 898
Interest charges 4 487 5 357 8 913 10 959
Other income, net (5) (90) (7) (93)
Net income $ 6 771 $ 7 478 $13 856 $14 697
</TABLE>
The Company's share of the equity in earnings above was $3.0
million and $3.4 million for the three months ended June 30, 1994
and 1993, respectively, and $6.2 million and $6.6 million for the
six months ended June 30, 1994 and 1993, respectively. These
amounts were included in other income, net, on the Consolidated
Statement of Income.
<PAGE>
- 7 -
4. Common stock dividends per share declared and paid during the
periods for which income statements are included are as follows:
<TABLE>
<CAPTION>
1994 1993
1st 2nd 1st 2nd
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Number of Shares 22,361,586 22,361,586 17,361,586 17,361,586
Amount Per Share $1.12 $1.11 $1.18 $1.17
</TABLE>
Earnings per share are not reported inasmuch as the common stock
of the Company is 100% owned by its parent, Allegheny Power System,
Inc.
<PAGE>
- 8 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1994
WITH SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1993
CONSOLIDATED NET INCOME
Consolidated net income for the second quarter and
first six months of 1994 was $22.7 million and $56.8 million, respectively,
compared with $20.3 million and $48.0 million for the corresponding 1993
periods. The increase in consolidated net income for the first six months
of 1994 reflects revenue increases from retail customers due to a previously
reported rate increase effective in May 1993 and greater kilowatthour (kWh)
sales to retail customers. Earnings for the second quarter of 1994 also
reflect increased retail revenues, but to a lesser extent because of more
moderate weather in April and May 1994. Increased depreciation, maintenance,
and other expenses continued in both periods.
SALES AND REVENUES
Retail kWh sales to residential and commercial
customers increased .4%, and 3%, respectively, and to industrial customers
decreased 2% for the second quarter. Retail kWh sales to residential,
commercial, and industrial customers increased 5%, 5%, and 1% for the first
six months, respectively. Record cold temperatures in mid-January 1994
contributing to first quarter 1994 residential and commercial kWh sales
increases of 8% and 6%, respectively, were followed by milder temperatures
and lower kWh sales in April and May 1994. Increases in residential sales
caused by the June 1994 higher-than-normal temperatures will, to a
substantial extent, be reflected in earnings in the third quarter after such
sales have been billed to customers. The decrease in kWh sales to industrial
customers in the second quarter of 1994 was due to decreased sales to primary
metal customers resulting primarily from a 70-day strike, ending June 9,
1994, at the Company's largest industrial customer. The increase in kWh
sales to industrial customers for the first six months resulted primarily
from increased sales to paper and fabricated metals customers. The increases
in revenues from retail customers resulted from the following:
<TABLE>
<CAPTION>
Increase from Prior Periods
Quarter Six Months
(Millions of Dollars)
<S> <C> <C>
Increased kWh sales $ .8 $ 9.0
Fuel and energy cost adjustment
clauses (1) 1.1 13.5
Rate changes (2) 9.2 22.7
Other .5 2.1
$11.6 $47.3
</TABLE>
<PAGE>
- 9 -
(1) Changes in revenues from fuel and energy cost adjustment clauses
have little effect on consolidated net income.
(2) Reflects a base rate increase on an annual basis of about $61.6
million in Pennsylvania effective May 18, 1993, including $26.1
million for recovery of carrying charges on costs to comply with
the Clean Air Act Amendments of 1990 (CAAA).
KWh sales to and revenues from nonaffiliated utilities
are comprised of the following items:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
KWh sales (in billions):
<S> <C> <C> <C> <C>
From Company generation .2 .2 .3 .4
From purchased power .7 1.1 2.2 2.5
.9 1.3 2.5 2.9
Revenues (in millions):
From Company generation $ 4.3 $ 4.9 $ 8.6 $ 10.4
From sales of purchased power 28.4 35.0 72.7 69.5
$32.7 $39.9 $ 81.3 $ 79.9
</TABLE>
Sales from Company generation decreased because of
growth of kWh sales to retail customers and generating unit outages, both of
which reduce the amount available for sale, and continuing price competition.
Sales from purchased power varies depending on the availability of eastern
utilities' generating equipment, demand for energy, and competition. Most
of the aggregate benefits from sales to nonaffiliated utilities is passed on
to retail customers and has little effect on consolidated net income.
OPERATING EXPENSES
Fuel expenses for the second quarter and the first six
months of 1994 increased .4% and 1%, respectively, due primarily to increases
in average coal prices, offset in part by decreases in kWh generated. Fuel
expenses are primarily subject to deferred power cost accounting procedures
with the result that changes in fuel expenses have little effect on
consolidated net income.
<PAGE>
- 10 -
"Purchased power and exchanges, net" represents power
purchases from and exchanges with nonaffiliated utilities, purchases from
qualified facilities under the Public Utility Regulatory Policies Act of 1978
(PURPA), capacity charges paid to Allegheny Generating Company (AGC), and
other transactions with affiliates made pursuant to a power supply agreement
whereby each company uses the most economical generation available in the
Allegheny Power System at any given time, and is comprised of the following
items:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
<S> <C> <C> <C> <C>
For resale to other utilities $ 25.0 $29.8 $ 64.2 $ 61.2
From PURPA generation 16.7 14.0 32.5 27.7
Other 4.1 1.8 10.1 3.0
Power exchanges, net (1.1) (.9) .4 (1.0)
Affiliated transactions:
AGC capacity charges 9.7 10.7 19.5 21.2
Energy and spinning reserve
charges 2.1 .7 3.1 1.6
Other affiliated capacity charges .2 .1 .4 .3
$ 56.7 $56.2 $130.2 $114.0
</TABLE>
The amount of power purchased from nonaffiliated
utilities for use by the Company and for resale to nonaffiliated utilities
depends upon the availability of the Company's generating equipment,
transmission capacity, and fuel, and its cost of generation and the cost of
operations of nonaffiliated utilities from which such purchases are made.
The cost of power purchased for use by the Company, including power from
PURPA generation and affiliated utilities, is mostly recovered from customers
currently through the regular fuel and energy cost recovery procedures
followed by the Company's regulatory commissions and is primarily subject to
deferred power cost procedures with the result that changes in such costs
have little effect on consolidated net income. As described under SALES AND
REVENUES above, the increase in sales to retail customers combined with
generating unit outages resulted in increased purchases from nonaffiliated
utilities. The primary reason for the fluctuation in purchases for resale
to nonaffiliated utilities is also described under SALES AND REVENUES above.
The increase in energy and spinning reserve charges was due to growth of kWh
sales to retail customers and an increase in affiliated energy available
because of energy purchased from a new PURPA project in 1993.
The increases in other operation expenses resulted
primarily from previously reported asbestos suits and a superfund site
cleanup, increased provisions for uncollectible accounts, an SEC-directed
larger allocation of the Parent's corporate expenses for shareholder-related
activities, and increases in salaries and wages and employee benefit costs,
offset in part by a decrease in workers' compensation claims.
Maintenance expenses represent costs incurred to
maintain the power stations, the transmission and distribution (T&D) system,
and general plant, and reflect routine maintenance of equipment and rights-
of-way as well as planned major repairs and unplanned expenditures, primarily
from forced outages at the power stations and periodic storm damage on the
T&D system. The Company is experiencing, and expects to continue to
experience, increased expenditures due to the aging of its power stations.
Variations in maintenance expense result primarily from unplanned events and
planned major projects, which vary in timing and magnitude depending upon the
length of time equipment has been in service without a major overhaul, the
amount of work found necessary when equipment is dismantled, and outage
requirements to comply with the CAAA.
<PAGE>
- 11 -
The increases in depreciation expense for the second
quarter and first six months of 1994 resulted primarily from a change in
depreciation rates and net salvage amortization as a result of the May 1993
rate order and additions to electric plant. Because of the increased levels
of capital expenditures as a result of the CAAA and the replacement of aging
equipment at the Company's power stations, depreciation expense is expected
to increase significantly over the next few years.
Taxes other than income taxes decreased $1.2 million
and $.8 million for the second quarter and first six months of 1994,
respectively, due primarily to decreased West Virginia Business and
Occupation taxes due to lower generation within that state ($1.8 million and
$3.1 million) offset in part by increases in gross receipts taxes resulting
from higher revenues from retail customers ($.5 million and $2.1 million,
respectively). The net increases of $1.4 and $5.5 million in federal and
state income taxes for the second quarter and first six month periods,
respectively, resulted primarily from an increase in income before taxes and
an increase in the federal income tax rate pursuant to the Revenue
Reconciliation Act of 1993 enacted in August 1993.
The combined decreases of $.7 million and $1.6 million
in allowance for funds used during construction (AFUDC) for the second
quarter and first six month periods, respectively, reflect increases in the
current recovery of carrying charges on CAAA expenditures in lieu of
recording AFUDC.
Interest on long-term debt decreased $1.4 million for
the quarter and $2.7 million for the first six months due primarily to
interest savings from debt refinancings in 1993. Fluctuations in other
interest expense as well as other income, net, reflect changes in the levels
of short-term debt and temporary investments maintained by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's discussion on Liquidity and Capital
Resources in the Allegheny Power System companies' combined Annual Report on
Form 10-K for the year ended December 31, 1993 should be read with the
following information.
On March 31, 1994, the Company filed with the
Pennsylvania Public Utility Commission for an increase in base rates of about
$80 million in additional annual revenues. This increase, along with an
additional rate increase request to be filed at the Federal Energy Regulatory
Commission for wholesale customers, includes recovery of the remaining
carrying charges on investment, depreciation, and operating costs required
to comply with Phase I of the CAAA, and other increasing levels of expenses.
It is expected that the Company will begin to receive additional revenues
from these rate cases on or about the time it begins to incur additional
depreciation and operating costs for the scrubbers to be placed in service
on or before January 1, 1995.
On August 2, 1994, the Company sold $65 million of 30-
year, 8-1/8% first mortgage bonds to repay outstanding short-term debt and
for general corporate purposes.
<PAGE>
- 12 -
On August 10, 1994, the Company issued $14.910 million
of 6-3/4%, 30-year solid waste disposal revenue notes, the proceeds of which
will be used on the Harrison Power Station scrubber project.
In the normal course of business, the Company is
subject to various contingencies and uncertainties relating to its operations
and construction program, including cost recovery in the regulatory process,
laws, regulations and uncertainties related to environmental matters, and
legal actions.
As previously reported, Monongahela Power Company, an
affiliated company, is currently named as a defendant along with multiple
other defendants in 1,625 pending asbestos cases involving multiple
plaintiffs, including 195 new cases filed in the second quarter of 1994, and
the Company and its affiliates have been named as defendants along with
multiple defendants in an additional 627 cases by multiple plaintiffs. While
the cumulative number of claims appears to be significant, previous cases
have been settled for an amount substantially less than the anticipated cost
of defense, and it is believed that more than half of the cases relate solely
to other defendants. The Company believes that the remaining cases involving
the Company are without merit and that provisions for liabilities are such
that these suits will not have a material effect on its financial position.
The Company previously reported that the Environmental
Protection Agency (EPA) had identified it and its affiliates and
approximately 875 others as potentially responsible parties in a Superfund
site subject to cleanup. A Remedial Investigation/Feasibility Study prepared
by the EPA indicates remedial alternatives which range as high as $113 million,
to be shared by all responsible parties. The EPA has not yet selected which
remedial alternative it will use. The Company believes it has defenses to
allegations of liability and intends to vigorously defend this matter.
Although it is not possible at this time to determine what costs, if any, the
Company may incur, it has recorded provisions for liabilities based on the range
of remediation cost estimates and its relative participation, along with its
affiliates and the approximately 875 others. The Company believes that final
resolution of this matter will not have a material effect on its financial
position.
<PAGE>
- 13 -
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Part II - Other Information to Form 10-Q
for Quarter Ended June 30, 1994
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed on behalf of the
Company for the quarter ended June 30, 1994.
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.
WEST PENN POWER COMPANY
C. V. BURKLEY
C. V. Burkley, Comptroller
(Chief Accounting Officer)
August 11, 1994
