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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 March 31, 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 May 12, 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.
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Form 10-Q for Quarter Ended March 31, 1994
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Consolidated statement of income -
Three months ended March 31, 1994 and 1993 3
Consolidated balance sheet - March 31, 1994
and December 31, 1993 4
Consolidated statement of cash flows -
Three months ended March 31, 1994 and 1993 5
Notes to consolidated financial statements 6
Management's discussion and analysis of financial
condition and results of operations 7-9
PART II--OTHER INFORMATION 10-11
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<TABLE>
<CAPTION>
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Income
Three Months Ended
March 31
1994 1993
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C>
Residential $116 925 $ 97 263
Commercial 54 544 47 176
Industrial 82 985 74 286
Nonaffiliated utilities 48 590 39 998
Other, including affiliates 21 787 21 295
Total Operating Revenues 324 831 280 018
OPERATING EXPENSES:
Operation:
Fuel 73 088 71 820
Purchased power and exchanges, net 73 471 57 803
Deferred power costs, net 3 367 (429)
Other 36 353 31 807
Maintenance 30 330 24 443
Depreciation 21 930 19 209
Taxes other than income taxes 23 912 23 474
Federal and state income taxes 18 879 14 740
Total Operating Expenses 281 330 242 867
Operating Income 43 501 37 151
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 1 083 1 460
Other income, net 3 225 3 363
Total Other Income and Deductions 4 308 4 823
Income Before Interest Charges 47 809 41 974
INTEREST CHARGES:
Interest on long-term debt 13 891 15 168
Other interest 536 309
Allowance for borrowed funds used during
construction (645) (1 150)
Total Interest Charges 13 782 14 327
Consolidated Net Income $ 34 027 $ 27 647
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
March 31 December 31
1994 1993
(Thousands of Dollars)
ASSETS
Property, Plant, and Equipment:
At original cost, including $301,149,000 and
<S> <C> <C>
$283,779,000 under construction $2 833 061 $2 803 811
Accumulated depreciation (975 357) (962 623)
1 857 704 1 841 188
Investments and Other Assets:
Allegheny Generating Company - common stock
at equity 102 025 102 830
Other 1 599 1 537
103 624 104 367
Current Assets:
Cash and temporary cash investments 397 565
Accounts receivable:
Electric service, net of $1,680,000 and
$1,126,000 uncollectible allowance 106 917 94 570
Affiliated and other 21 527 22 372
Notes receivable from affiliates 3 700 24 900
Materials and supplies - at average cost:
Operating and construction 38 380 36 030
Fuel 31 378 32 892
Prepaid taxes 31 199 10 827
Other 11 602 7 127
245 100 229 283
Deferred Charges:
Regulatory assets 332 073 331 755
Unamortized loss on reacquired debt 11 357 11 645
Other 27 932 26 525
371 362 369 925
Total Assets $2 577 790 $2 544 763
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 425 994 $ 425 994
Other paid-in capital 55 687 55 687
Retained earnings 419 242 412 288
900 923 893 969
Preferred stock - not subject to mandatory redemption 149 708 149 708
Long-term debt 784 130 782 369
1 834 761 1 826 046
Current Liabilities:
Accounts payable 105 689 105 493
Accounts payable to affiliates 8 602 9 451
Taxes accrued:
Federal and state income 29 933 11 533
Other 11 329 22 823
Interest accrued 13 272 13 855
Other 29 927 20 954
198 752 184 109
Deferred Credits and Other Liabilities:
Unamortized investment credit 54 876 55 524
Deferred income taxes 432 504 424 000
Regulatory liabilities 40 793 40 834
Other 16 104 14 250
544 277 534 608
Total Capitalization and Liabilities $2 577 790 $2 544 763
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Cash Flows
Three Months Ended
March 31
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Consolidated net income $ 34 027 $ 27 647
Depreciation 21 930 19 209
Deferred investment credit and income taxes, net (6 823) (1 288)
Deferred power costs, net 3 367 (429)
Unconsolidated subsidiaries' dividends in
excess of earnings 843 1 176
Allowance for other than borrowed funds used
during construction (1 083) (1 460)
Changes in certain current assets and liabilities:
Accounts receivable, net (11 502) (6 981)
Materials and supplies (836) (20)
Accounts payable (653) (14 693)
Taxes accrued 6 906 5 227
Interest accrued (583) (5 069)
Other, net (3 092) (7 396)
42 501 15 923
CASH FLOWS FROM INVESTING:
Construction expenditures (39 523) (40 455)
Allowance for other than borrowed
funds used during construction 1 083 1 460
(38 440) (38 995)
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 1 644 62 535
Deposit with trustee for redemption of long-term debt - (61 500)
Short-term debt, net - 9 800
Notes receivable from affiliates 21 200 20 900
Dividends on capital stock:
Preferred stock (2 028) (2 046)
Common stock (25 045) (20 487)
(4 229) 9 202
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (168) (13 870)
Cash and Temporary Cash Investments at January 1 565 14 342
Cash and Temporary Cash Investments at March 31 $ 397 $ 472
Supplemental cash flow information:
Cash paid during the quarter for:
Interest (net of amount capitalized) $ 13 830 $ 19 222
Income taxes 739 1 823
</TABLE>
See accompanying notes to consolidated financial statements.
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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
March 31, 1994, and the results of operations and cash flows for
the three months ended March 31, 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
March 31
1994 1993
(Thousands of Dollars)
<S> <C> <C>
Electric operating revenues $22 431 $23 423
Operation and maintenance expense 1 833 1 678
Depreciation 4 236 4 226
Taxes other than income taxes 1 340 1 297
Federal income taxes 3 513 3 404
Interest charges 4 426 5 602
Other income, net (2) (3)
Net income $ 7 085 $ 7 219
</TABLE>
The Company's share of the equity in earnings above was $3.2
million for each of the three months ended March 31, 1994 and 1993,
and was included in other income, net, on the Consolidated
Statement of Income.
4. Common stock dividends per share declared and paid during the
periods for which income statements are included are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1994 1993
<S> <C> <C>
Number of Shares 22 361 586 17 361 586
Amount per Share $1.12 $1.18
</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.
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF FIRST QUARTER OF 1994 WITH FIRST QUARTER 1993
CONSOLIDATED NET INCOME
Consolidated net income for the first quarter of 1994
was $34.0 million compared with $27.6 million for the corresponding 1993
period. The increase in consolidated net income for the first quarter of
1994 resulted from greater kilowatthour (kWh) sales to retail customers and
a previously reported rate increase effective in May 1993, offset in part by
increased maintenance, depreciation, and other expenses. Retail sales in the
first quarter of 1994 were favorably affected by record-setting cold
temperatures in January 1994.
SALES AND REVENUES
Retail kWh sales to residential, commercial, and
industrial customers increased 8%, 6%, and 4% respectively. The increase in
kWh sales to residential and commercial customers was primarily due to an
increase in weather-related sales. In mid-January 1994, the coldest
temperatures ever recorded in much of the Company's service territory
resulted in heating degree days which were 48% over the prior January and 13%
above normal. The increase in kWh sales to industrial customers occurred in
almost all industrial groups. The 16% increase in revenues from retail
customers resulted from the following:
<TABLE>
<CAPTION>
Change from Prior Periods
(Millions of Dollars)
<S> <C>
Increased kWh sales $ 8.2
Fuel and energy cost adjustment clauses (1) 12.3
Rate changes (2) 13.6
Other 1.6
$35.7
</TABLE>
(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
March 31
1994 1993
KWh sales (in billions):
<S> <C> <C>
From Company generation .1 .2
From purchased power 1.5 1.3
1.6 1.5
Revenues (in millions):
From Company generation $ 4.3 $ 5.5
From sales of purchased power 44.3 34.5
$48.6 $40.0
</TABLE>
Sales from Company generation decreased because of growth
of kWh sales to retail customers and generating unit outages, both of which
reduces the amount available for sale, and continuing price competition.
Increased sales from purchased power were due to increased demand resulting
primarily from reduced availability of eastern utilities' generation
equipment. Most of the aggregate benefits from sales to nonaffiliated
utilities is passed on to retail customers and has little effect on
consolidated net income.
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OPERATING EXPENSES
Fuel expenses increased 2%, the net result of a 4%
increase in average coal prices and a 2% decrease 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.
"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
March 31
1994 1993
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
<S> <C> <C>
For resale to other utilities $39.3 $31.3
From PURPA generation 15.8 13.6
Other 5.9 1.3
Power exchanges, net 1.4 (.1)
Affiliated transactions:
AGC capacity charges 9.8 10.5
Energy and spinning reserve charges 1.1 1.0
Other affiliated capacity charges .2 .2
$73.5 $57.8
</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 companies, 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 described under SALES AND REVENUES above.
The increases in other operation expense resulted primarily
from the timing of expenditures for increased participation in research and
development activities of the Electric Power Research Institute, provisions
for claims related to previously reported asbestos suits and a superfund site
cleanup, and increased provisions for uncollectible accounts.
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.
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The increase in depreciation expense 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 expected 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.
The net increase of $4.1 million in federal and state income
taxes 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 decrease of $.9 million in allowance for funds
used during construction (AFUDC) reflects primarily an increase in the
current recovery of carrying charges on CAAA expenditures in lieu of
recording AFUDC.
Interest on long-term debt decreased $1.3 million 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 temporary investments and short-term debt 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 revenues on an annual basis. This increase, along with an
additional rate increase request at the Federal Energy Regulatory Commission
for wholesale customers, includes recovery of the remaining carrying charges
on investment, depreciation, and all 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.
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, has been named as a defendant along with multiple other
defendants in 1,430 pending asbestos cases involving multiple plaintiffs and
the Company and its affiliates have been named as defendants along with
multiple defendants in an additional 626 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 non-affiliated defendants. The Company believes that the remaining cases
involving the Company and its affiliates are without merit and that
provisions for liabilities are such that these suits will not have a material
effect on its financial position.
As also previously reported, the Company and its affiliates
and approximately 875 others have been identified by the Environmental
Protection Agency as potentially responsible parties in a superfund site
subject to cleanup. The Company believes that provisions for liabilities are
such that costs incurred in connection with remediation efforts will not have
a material effect on its financial position.
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Part II--Other Information to Form 10-Q
for Quarter Ended March 31, 1994
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Date and kind of meeting
The annual meeting of shareholders was held at
Greensburg Pennsylvania, on April 20, 1994. No
proxies were solicited.
(b) Election of Directors:
The holder of all 22,361,586 shares of common stock
voted to elect the following Directors at the annual
meeting to hold office until the next annual meeting
of shareholders and until their successors are duly
chosen and qualified.
Eleanor Baum
William L. Bennett
Klaus Bergman
Stanley I. Garnett, II
Phillip E. Lint
Edward H. Malone
Frank A. Metz, Jr.
Clarence F. Michalis *
Jay S. Pifer
Steven H. Rice
Gunnar E. Sarsten
Peter L. Shea
Peter J. Skrgic
* Resigned effective May 1, 1994.
ITEM 5. OTHER INFORMATION
On May 4, 1994, the Pennsylvania Public Utility Commission
approved the Company's request to accrue post in-service carrying charges on
the Harrison scrubbers and to defer related depreciation and operating and
maintenance expenses until they are recognized in rates.
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 March 31, 1994.
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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.
WEST PENN POWER COMPANY
C. V. BURKLEY
C. V. Burkley, Comptroller
(Chief Accounting Officer)
May 12, 1994
