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 September 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 November 10, 1994, 24,361,586 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>
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Form 10-Q for Quarter Ended September 30, 1994
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Consolidated statement of income -
Three and nine months ended September 30, 1994 and 1993 3
Consolidated balance sheet - September 30, 1994
and December 31, 1993 4
Consolidated statement of cash flows -
Nine months ended September 30, 1994 and 1993 5
Notes to consolidated financial statement 6-7
Management's discussion and analysis of financial
condition and results of operations 8-12
PART II--OTHER INFORMATION 13
<PAGE>
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<TABLE>
<CAPTION>
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Income
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C> <C> <C>
Residential $ 90 196 $ 90 436 $292 806 $268 300
Commercial 53 841 53 039 157 791 145 683
Industrial 83 645 78 942 246 934 230 992
Nonaffiliated utilities 32 986 35 089 114 315 114 968
Other, including affiliates 15 823 13 960 55 476 51 414
Total Operating Revenues 276 491 271 466 867 322 811 357
OPERATING EXPENSES:
Operation:
Fuel 62 471 60 471 198 289 194 779
Purchased power and exchanges, net 58 567 58 515 188 733 172 476
Deferred power costs, net (43) (111) 2 015 2 537
Other 35 052 32 242 106 355 97 861
Maintenance 26 683 25 681 85 859 75 305
Depreciation 21 957 21 107 66 257 60 231
Taxes other than income taxes 21 752 21 908 66 055 66 999
Federal and state income taxes 13 635 15 178 42 225 38 259
Total Operating Expenses 240 074 234 991 755 788 708 447
Operating Income 36 417 36 475 111 534 102 910
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 2 206 598 4 866 3 886
Other income, net 3 131 3 388 9 360 10 260
Total Other Income and Deductions 5 337 3 986 14 226 14 146
Income Before Interest Charges 41 754 40 461 125 760 117 056
INTEREST CHARGES:
Interest on long-term debt 14 855 14 328 42 638 44 819
Other interest 644 477 1 690 1 197
Allowance for borrowed funds used during
construction (1 329) (465) (2 924) (3 039)
Total Interest Charges 14 170 14 340 41 404 42 977
Consolidated Net Income $ 27 584 $ 26 121 $ 84 356 $ 74 079
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
September 30 December 31
1994 1993
(Thousands of Dollars)
ASSETS
Property, Plant, and Equipment:
At original cost, including $367,140,000 and
<S> <C> <C>
$283,779,000 under construction $2 926 720 $2 803 811
Accumulated depreciation (995 873) (962 623)
1 930 847 1 841 188
Investments and Other Assets:
Allegheny Generating Company - common stock
at equity 100 274 102 830
Other 1 516 1 537
101 790 104 367
Current Assets:
Cash and temporary cash investments 408 565
Accounts receivable:
Electric service, net of $2,519,000 and
$1,126,000 uncollectible allowance 81 666 94 570
Affiliated and other 17 187 22 372
Notes receivable from affiliates 6 500 24 900
Materials and supplies - at average cost:
Operating and construction 39 039 36 030
Fuel 37 923 32 892
Prepaid taxes 17 248 10 827
Other 13 059 7 127
213 030 229 283
Deferred Charges:
Regulatory assets 343 864 331 755
Unamortized loss on reacquired debt 10 782 11 645
Other 24 306 26 525
378 952 369 925
Total Assets $2 624 619 $2 544 763
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 425 994 $ 425 994
Other paid-in capital 55 687 55 687
Retained earnings 421 040 412 288
902 721 893 969
Preferred stock - not subject to mandatory redemption 149 708 149 708
Long-term debt 863 302 782 369
1 915 731 1 826 046
Current Liabilities:
Accounts payable 85 119 105 493
Accounts payable to affiliates 5 227 9 451
Taxes accrued:
Federal and state income 13 920 11 533
Other 14 537 22 823
Interest accrued 14 338 13 855
Other 30 909 20 954
164 050 184 109
Deferred Credits and Other Liabilities:
Unamortized investment credit 53 583 55 524
Deferred income taxes 435 798 424 000
Regulatory liabilities 40 734 40 834
Other 14 723 14 250
544 838 534 608
Total Capitalization and Liabilities $2 624 619 $2 544 763
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Cash Flows
Nine Months Ended
September 30
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Consolidated net income $ 84 356 $ 74 079
Depreciation 66 257 60 231
Deferred investment credit and income taxes, net (11 390) (8 256)
Deferred power costs, net 2 015 2 537
Unconsolidated subsidiaries' dividends in
excess of earnings 2 679 4 288
Allowance for other than borrowed funds used
during construction (4 866) (3 886)
Changes in certain current assets and liabilities:
Accounts receivable, net 18 089 7 217
Materials and supplies (8 040) 17 697
Accounts payable (24 598) (14 892)
Taxes accrued (5 899) (2 713)
Interest accrued 483 (5 020)
Other, net 13 031 14 027
132 117 145 309
CASH FLOWS FROM INVESTING:
Construction expenditures (160 065) (171 163)
Allowance for other than borrowed
funds used during construction 4 866 3 886
(155 199) (167 277)
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 80 129 261 693
Retirement of long-term debt - (226 199)
Deposit with trustee for redemption of long-term debt - (25 215)
Short-term debt, net - 44 500
Notes receivable from affiliates 18 400 20 900
Dividends on capital stock:
Preferred stock (6 283) (6 137)
Common stock (69 321) (61 286)
22 925 8 256
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (157) (13 712)
Cash and Temporary Cash Investments at January 1 565 14 342
Cash and Temporary Cash Investments at September 30 $ 408 $ 630
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 39 541 $ 47 397
Income taxes 43 669 44 151
See accompanying notes to consolidated financial statements.
</TABLE>
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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
September 30, 1994, the results of operations for the three and
nine months ended September 30, 1994 and 1993, and cash flows for
the nine months ended September 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. On August 10, 1994, the Company issued $14.91 million of 6.75%, 30-
year solid waste disposal revenue notes, the proceeds of which are
being used on the Harrison Power Station scrubber project.
On August 2, 1994, the Company issued $65 million of 8.125%, 30-
year first mortgage bonds, the proceeds of which were used to repay
outstanding short-term debt and for other corporate purposes.
4. 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 Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Electric operating revenues $22 337 $23 391 $66 637 $70 544
Operation and maintenance expense 1 653 1 312 4 930 4 953
Depreciation 4 236 4 225 12 708 12 677
Taxes other than income taxes 1 399 1 298 4 267 3 897
Federal income taxes 3 498 4 001 10 419 10 899
Interest charges 4 467 5 199 13 380 16 158
Other income, net (3) (9) (10) (102)
Net income $ 7 087 $ 7 365 $20 943 $22 062
</TABLE>
The Company's share of the equity in earnings above was $3.2
million and $3.3 million for the three months ended September 30,
1994 and 1993, respectively, and $9.4 million and $9.9 million for
the nine months ended September 30, 1994 and 1993, respectively.
These amounts were included in other income, net, on the
Consolidated Statement of Income.
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5. Common stock dividends per share declared and paid during the
periods for which income statements are included are as follows:
<TABLE>
<CAPTION>
1994 1993
Number Amount Number Amount
of Shares Per Share of Shares Per Share
<S> <C> <C> <C> <C>
First Quarter 22 361 586 $1.12 17 361 586 $1.18
Second Quarter 22 361 586 $1.11 17 361 586 $1.17
Third Quarter 22 361 586 $ .87 17 361 586 $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.
<PAGE>
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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 THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994
WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1993
CONSOLIDATED NET INCOME
Consolidated net income for the third quarter and first
nine months of 1994 was $27.6 million and $84.4 million, respectively,
compared with $26.1 million and $74.1 million for the corresponding 1993
periods. The increase in consolidated net income for the first nine 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. KWh sales in the 1994 third quarter increased despite relatively cool
weather, and were sufficient to offset increases in depreciation,
maintenance, and other expenses.
SALES AND REVENUES
Retail kWh sales to residential, commercial, and
industrial customers increased 1%, 2%, and 7% for the third quarter and
increased 4%, 4%, and 3% for the first nine months, respectively. The
increase in kWh sales to residential and commercial customers for the third
quarter reflects growth in the number of customers, and for the first nine
months was primarily due to variances in weather-related sales. Increased
kWh sales in July 1994, reflecting additional temperature-related June sales
billed in July, were offset by lower September sales. Moderate temperatures
this summer resulted in cooling degree days in the third quarter 29% lower
than during the corresponding 1993 quarter. Increases in kWh sales to
industrial customers in the first nine months resulted primarily from
increased sales to paper and fabricated metals customers. Increases in the
third quarter occurred in most industrial groups. The increases in revenues
from retail customers resulted from the following:
<TABLE>
<CAPTION>
Increase from Prior Periods
Quarter Nine Months
(Millions of Dollars)
<S> <C> <C>
Increased kWh sales $ 2.4 $11.7
Fuel and energy cost adjustment
clauses (1) 2.7 16.1
Rate changes (2) - 22.5
Other .2 2.3
$ 5.3 $52.6
</TABLE>
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(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 Nine Months Ended
September 30 September 30
1994 1993 1994 1993
KWh sales (in billions):
<S> <C> <C> <C> <C>
From Company generation .1 - .4 .4
From purchased power .8 1.2 3.0 3.7
.9 1.2 3.4 4.1
Revenues (in millions):
From Company generation $ 2.1 $ .4 $ 10.7 $ 10.8
From sales of purchased power 30.9 34.7 103.6 104.2
$33.0 $35.1 $114.3 $115.0
</TABLE>
Sales from Company generation increased in the third
quarter because of the decrease in weather-related kWh sales to retail
customers and the availability of the Company's generating units. 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 third quarter and the first nine
months of 1994 increased 3% and 2%, respectively, due to an increase in kWh
generated in the third quarter and increases in average coal prices in the
first nine months. 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>
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"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 Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
<S> <C> <C> <C> <C>
For resale to other utilities $27.5 $30.6 $ 91.7 $ 91.8
From PURPA generation 16.4 8.8 48.9 36.4
Other 3.8 7.5 13.9 10.5
Power exchanges, net (1.3) (1.0) (.9) (2.0)
Affiliated transactions:
AGC capacity charges 10.0 10.6 29.5 31.8
Energy and spinning reserve
charges 2.0 1.9 5.1 3.6
Other affiliated capacity charges .2 .1 .5 .4
$58.6 $58.5 $188.7 $172.5
</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 decrease in weather-related sales to retail customers,
combined with the availability of Company's generating units and the
requirement to purchase higher-priced PURPA generation, resulted in decreased
purchases from nonaffiliated utilities in the third quarter. The primary
reason for the fluctuation in purchases for resale to nonaffiliated utilities
is also described under SALES AND REVENUES above.
The increases in other operation expenses resulted
primarily from first quarter charges for 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.
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 increases in depreciation expense for the third
quarter and first nine 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 $.2 million and
$.9 million for the third quarter and first nine months of 1994,
respectively, due primarily to decreased West Virginia Business and
Occupation taxes and a prior period adjustment, offset in part by increases
in gross receipts taxes resulting from higher revenues from retail customers.
The variances in federal and state income taxes for the third quarter and
first nine months resulted primarily from changes in income before taxes.
The combined increase of $2.5 million in allowance for
funds used during construction (AFUDC) for the third quarter resulted
primarily from a prior period adjustment recorded in 1993.
Interest on long-term debt decreased $2.2 million for
the first nine 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 (PUC) for an increase in retail base
rates of about $80.1 million in additional annual revenues. On October 28,
1994, the PUC Administrative Law Judge (ALJ) recommended that the Company
receive $43.8 (less $2.1 million for wholesale customers) million of the
requested increase in base rates. The Company plans to file exceptions to
the ALJ's recommendation. This increase, along with an additional rate
increase 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. The
Company will begin to record additional depreciation and operating costs for
the Harrison Power Station scrubbers when it begins to receive additional
revenues from these rate cases.
On October 3, 1994, the Company sold 2 million shares
of its no par value common stock to its parent, Allegheny Power System, Inc.
for a total of $40 million.
<PAGE>
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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 1,625 pending asbestos cases involving multiple plaintiffs, and
the Company and its affiliates have been named as defendants along with
multiple defendants in an additional 718 cases by multiple plaintiffs,
including 91 new cases filed in the third quarter of 1994. 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 and
insurance recoveries 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 provisions for liabilities and insurance recoveries
are such that final resolution of this matter will not have a material effect
on its financial position.
<PAGE>
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Part II - Other Information to Form 10-Q
for Quarter Ended September 30, 1994
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) On August 2, 1994, the Company filed a report on Form
8-K including exhibits consisting of a Supplemental
Indenture dated as of August 1, 1994, and statements
on the computation in support of ratio of earnings to
fixed charges.
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
/s/ C. V. BURKLEY
C. V. Burkley, Comptroller
(Chief Accounting Officer)
November 10, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000105839
<NAME> WEST PENN POWER COMPANY
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-02-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 5
<SECURITIES> 403
<RECEIVABLES> 101,372
<ALLOWANCES> (2,519)
<INVENTORY> 76,962
<CURRENT-ASSETS> 213,030
<PP&E> 2,926,720
<DEPRECIATION> (995,873)
<TOTAL-ASSETS> 2,624,619
<CURRENT-LIABILITIES> 164,050
<BONDS> 863,302
<COMMON> 425,994
0
149,708
<OTHER-SE> 476,727
<TOTAL-LIABILITY-AND-EQUITY> 2,624,619
<SALES> 867,322
<TOTAL-REVENUES> 867,322
<CGS> 581,251
<TOTAL-COSTS> 713,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,404
<INCOME-PRETAX> 126,581
<INCOME-TAX> 42,225
<INCOME-CONTINUING> 84,356
<DISCONTINUED> 0
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<EPS-PRIMARY> 0.00
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</TABLE>
