<PAGE>
Page 1 of 11
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, 1995
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, 1995, 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.
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Form 10-Q for Quarter Ended March 31, 1995
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Consolidated statement of income -
Three months ended March 31, 1995 and 1994 3
Consolidated balance sheet - March 31, 1995
and December 31, 1994 4
Consolidated statement of cash flows -
Three months ended March 31, 1995 and 1994 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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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C>
Residential $113 500 $114 767
Commercial 57 069 53 866
Industrial 91 226 82 042
Nonaffiliated utilities 42 879 48 589
Other, including affiliates 21 117 21 787
Total Operating Revenues 325 791 321 051
OPERATING EXPENSES:
Operation:
Fuel 63 981 73 088
Purchased power and exchanges, net 69 742 73 472
Deferred power costs, net 7 790 2 107
Other 34 149 36 354
Maintenance 28 167 30 330
Depreciation 28 726 21 929
Taxes other than income taxes 22 701 23 746
Federal and state income taxes 20 644 17 887
Total Operating Expenses 275 900 278 913
Operating Income 49 891 42 138
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 818 1 083
Other income, net 2 328 3 225
Total Other Income and Deductions 3 146 4 308
Income Before Interest Charges 53 037 46 446
INTEREST CHARGES:
Interest on long-term debt 15 509 13 891
Other interest 632 535
Allowance for borrowed funds used during
construction (516) (645)
Total Interest Charges 15 625 13 781
Consolidated Income Before Cumulative Effect
of Accounting Change 37 412 32 665
Cumulative Effect of Accounting Change, net - 19 031
Consolidated Net Income $ 37 412 $ 51 696
</TABLE>
See accompanying notes to consolidated financial statements.
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
(Thousands of Dollars)
ASSETS
Property, Plant, and Equipment:
At original cost, including $120,003,000 and
<C> <C> <C>
$103,514,000 under construction $3 032 410 $3 013 777
Accumulated depreciation (1 026 362) (1 009 565)
2 006 048 2 004 212
Investments and Other Assets:
Allegheny Generating Company - common stock
at equity 99 157 100 228
Other 1 330 1 474
100 487 101 702
Current Assets:
Cash and temporary cash investments 299 345
Accounts receivable:
Electric service, net of $8,200,000 and
$8,267,000 uncollectible allowance 121 339 119 020
Affiliated and other 14 823 11 862
Notes receivable from affiliates - 1 000
Materials and supplies - at average cost:
Operating and construction 40 727 39 922
Fuel 39 290 38 205
Deferred income taxes 13 263 12 538
Prepaid taxes 34 381 11 100
Other 4 720 1 425
268 842 235 417
Deferred Charges:
Regulatory assets 364 307 364 473
Unamortized loss on reacquired debt 10 206 10 494
Other 16 347 15 560
390 860 390 527
Total Assets $2 766 237 $2 731 858
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 465 994 $ 465 994
Other paid-in capital 55 687 55 687
Retained earnings 446 054 433 801
967 735 955 482
Preferred stock - not subject to mandatory redemption 149 708 149 708
Long-term debt 836 551 836 426
1 953 994 1 941 616
Current Liabilities:
Short-term debt 20 197 -
Long-term debt due within one year 27 000 27 000
Accounts payable 83 204 107 792
Accounts payable to affiliates 4 264 6 477
Taxes accrued:
Federal and state income 31 810 9 217
Other 10 764 20 637
Interest accrued 14 324 16 475
Other 29 132 24 028
220 695 211 626
Deferred Credits and Other Liabilities:
Unamortized investment credit 52 301 52 946
Deferred income taxes 476 388 471 515
Regulatory liabilities 39 024 39 881
Other 23 835 14 274
591 548 578 616
Total Capitalization and Liabilities $2 766 237 $2 731 858
</TABLE>
See accompanying notes to consolidated financial statements.
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statement Of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Consolidated net income $ 37 412 $ 51 696
Depreciation 28 726 21 929
Deferred investment credit and income taxes, net 2 230 (7 814)
Deferred power costs, net 7 790 2 107
Unconsolidated subsidiaries' dividends in
excess of earnings 1 117 843
Allowance for other than borrowed funds used
during construction (818) (1 083)
Cumulative effect of accounting change
before income taxes - (32 891)
Changes in certain current assets and liabilities:
Accounts receivable, net, excluding cumulative
effect of accounting change (5 280) (8 983)
Materials and supplies (1 890) (836)
Accounts payable (26 801) (653)
Taxes accrued 12 720 20 601
Interest accrued (2 151) (583)
Other, net (17 708) (1 832)
35 347 42 501
CASH FLOWS FROM INVESTING:
Construction expenditures (32 249) (39 523)
Allowance for other than borrowed
funds used during construction 818 1 083
(31 431) (38 440)
CASH FLOWS FROM FINANCING:
Issuance of long-term debt - 1 644
Short-term debt, net 20 197 -
Notes receivable from affiliates 1 000 21 200
Dividends on capital stock:
Preferred stock (2 259) (2 028)
Common stock (22 900) (25 045)
(3 962) (4 229)
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (46) (168)
Cash and Temporary Cash Investments at January 1 345 565
Cash and Temporary Cash Investments at March 31 $ 299 $ 397
Supplemental cash flow information:
Cash paid during the quarter for:
Interest (net of amount capitalized) $ 17 200 $ 13 830
Income taxes - 739
</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, 1994, should be read with the
accompanying financial statements and the following notes. With
the exception of the December 31, 1994 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, 1995, and the results of operations and cash flows for
the three months ended March 31, 1995 and 1994.
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. Earnings for the first quarter of 1994 have been restated to
reflect retroactively the cumulative effect of an accounting change
adopted in January 1994 to record unbilled revenues.
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, a nonaffiliated utility.
Following is a summary of income statement information for AGC:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
(Thousands of Dollars)
<S> <C> <C>
Electric operating revenues $22 096 $22 431
Operation and maintenance expense 1 796 1 833
Depreciation 4 224 4 236
Taxes other than income taxes 1 299 1 340
Federal income taxes 3 223 3 513
Interest charges 4 985 4 426
Other income, net - (2)
Net income $ 6 569 $ 7 085
</TABLE>
The Company's share of the equity in earnings above was $3.0
million and $3.2 million for the three months ended March 31, 1995
and 1994, respectively, and was included in other income, net, on
the Consolidated Statement of Income.
5. 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
1995 1994
<S> <C> <C>
Number of Shares 24 361 586 22 361 586
Amount per Share $.94 $1.12
</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 1995 WITH FIRST QUARTER OF 1994
CONSOLIDATED NET INCOME
Consolidated net income for the first quarter of 1995
was $37.4 million compared with $32.7 million for the corresponding 1994
period, before the cumulative effect of an accounting change to record
unbilled revenues. Increased retail revenues in the first quarter of 1995,
resulting from a previously reported rate increase, more than offset the
effect of a decrease in retail sales due to mild weather.
SALES AND REVENUES
Retail kilowatthour (kWh) sales to residential
customers decreased 8%, to commercial customers remained unchanged, and to
industrial customers increased 7%. The decrease in kWh sales to residential
customers was primarily due to a decrease in weather-related sales. Mild
temperatures in the first quarter of 1995 resulted in heating degree days 7%
below normal, as compared to some of the coldest temperatures ever recorded
in much of the Company's service territory during the first quarter of 1994.
The increase in kWh sales to industrial customers was primarily due to higher
sales to iron and steel, fabricated metals, and paper customers. The 4%
increase in revenues from retail customers resulted from the following:
<TABLE>
<CAPTION>
Change from Prior Period
(Millions of Dollars)
<C> <C>
Decreased kWh sales $(2.1)
Fuel and energy cost adjustment clauses (1) (.9)
Rate increases (2) 13.6
Other .5
$11.1
</TABLE>
(1) Changes in revenues from fuel and energy cost
adjustment clauses have little effect on
consolidated net income.
(2) Reflects a rate increase on an annual basis of $55.5
million in Pennsylvania effective December 31, 1994.
This increase included recovery of carrying charges
on investment, depreciation, and operating costs
required to comply with Phase I of the Clean Air Act
Amendments of 1990 (CAAA), and other increasing
levels of expense.
KWh sales to and revenues from nonaffiliated utilities are
comprised of the following items:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
KWh sales (in billions):
<S> <C> <C>
From Company generation .1 .1
From purchased power 1.4 1.5
1.5 1.6
Revenues (in millions):
From Company generation $ 1.6 $ 4.3
From sales of purchased power 41.3 44.3
$42.9 $48.6
</TABLE>
Decreased sales to nonaffiliated utilities resulted
primarily from decreased demand, continuing price competition, and generating
unit outages which reduced the amount available for sale. 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 decreased 12%, the result of a 9%
decrease in average coal prices and a 3% decrease in kWh generated. The
reduced average coal prices are expected to continue as a result of
renegotiations of long-term fuel contracts which reduced fuel prices
effective January 1995. 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 and 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
1995 1994
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
<S> <C> <C>
For resale to other utilities $36.3 $39.3
From PURPA generation 16.6 15.8
Other 4.4 5.9
Power exchanges, net 1.7 1.4
Affiliated transactions:
AGC capacity charges 9.6 9.8
Energy and spinning reserve charges .9 1.1
Other affiliated capacity charges .2 .2
$69.7 $73.5
</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.
Purchases from PURPA generation may increase in future years if the
Pennsylvania Public Utility Commission (PUC) and the Pennsylvania courts
continue to require the Company to buy power from an independent developer,
Washington Power Company, LP. The Company's petition to the Federal Energy
Regulatory Commission (FERC) to prevent the PUC from taking such action has
been denied. The Company has joined with other utilities to support efforts
to repeal those sections of PURPA that require the Company to purchase power
from nonutility generators at long-term, fixed prices. The cost of power and
capacity purchased for use by the Company, including power from PURPA
generation and affiliated transactions, 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.
The decrease in other operation expense resulted
primarily from a decrease in transmission service charges and environmental
liabilities recorded in the first quarter of 1994, offset in part by
increased power station operating costs, including expenses related to the
Harrison scrubbers which became available for service in November 1994.
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 also 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
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depending upon the length of time equipment has been in service without a
major overhaul and the amount of work found necessary when equipment is
dismantled.
The increase in depreciation expense was due to
additions to electric plant, primarily because of the Harrison scrubbers
which became available for service in November 1994, and an increase in
depreciation rates concurrent with the Pennsylvania base rate increase
effective on December 31, 1994.
Taxes other than income taxes decreased $1.0 million
primarily from decreases in property taxes. West Virginia Business and
Occupation taxes (B&O taxes) are expected to decrease in future years due to
an amendment to the B&O tax recently enacted by the State of West Virginia
effective June 1, 1995, which reduces the Company's tax liability. The net
increase of $2.8 million in federal and state income taxes resulted primarily
from an increase in income before taxes.
Interest on long-term debt increased $1.6 million due
primarily to new security issues in 1994. The Company used the proceeds from
these issues for general corporate purposes and to finance capital
expenditures for the CAAA. 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, 1994, should be read with the
following information.
In the normal course of business, the Company is
subject to various contingencies and uncertainties relating to its operations
and construction programs, 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 2,016 pending asbestos cases involving one or more
plaintiffs, and the Company and its affiliates have been named as defendants
along with multiple other defendants in an additional 750 cases by one or
more plaintiffs, including 425 new cases filed in 1995 to date. 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. Also as 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 and insurance
recoveries are such that final resolution of these matters will not have a
material effect on its financial position.
In March 1995, the FERC published a Notice of
Proposed Rulemaking (NOPR) that would mandate sweeping changes to promote
increased competition in the wholesale electric industry. The proposals
would require that utilities file nondiscriminatory open access transmission
tariffs and offer comparable transmission services to eligible third parties.
It also would allow utilities the opportunity to recover stranded costs. The
Company is currently examining the effects of the NOPR on the System and the
entire electric utility industry, and plans to submit comments to the FERC.
<PAGE>
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WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 1995
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 19, 1995. No
proxies were solicited.
(b) Election of Directors:
The holder of all 24,361,586 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
Wendell F. Holland
Phillip E. Lint
Edward H. Malone
Frank A. Metz, Jr.
Alan J. Noia
Jay S. Pifer
Steven H. Rice
Gunnar E. Sarsten
Peter L. Shea
Peter J. Skrgic
ITEM 5. OTHER INFORMATION
On May 2, 1995, Washington Power Company, LP, the
developer of the Burgettstown PURPA project, filed
suit in federal court in the Western District of
Pennsylvania against the Company, Allegheny Power
System, Inc., and Allegheny Power Service
Corporation alleging antitrust violations, unfair
competition, breach of contract and intentional
interference with a contract. The lawsuit seeks
recovery of lost profits and out-of-pocket costs as
well as treble and punitive damages. The companies
cannot predict the outcome of this proceeding. In
May 1995, the complaint filed in November 1994 by
Washington Power Company, LP against the Company in
the Court of Common Pleas of Washington County,
Pennsylvania, was dismissed without prejudice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) On February 15, 1995, the Company filed a Form 8-K
containing an Employment Contract for Jay S. Pifer.
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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
/s/ C. V. BURKLEY
C. V. Burkley, Comptroller
(Chief Accounting Officer)
May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 274
<SECURITIES> 25
<RECEIVABLES> 144,362
<ALLOWANCES> (8,200)
<INVENTORY> 80,017
<CURRENT-ASSETS> 268,842
<PP&E> 3,032,410
<DEPRECIATION> 1,026,362
<TOTAL-ASSETS> 2,766,237
<CURRENT-LIABILITIES> 220,695
<BONDS> 836,551
<COMMON> 465,994
0
149,708
<OTHER-SE> 501,741
<TOTAL-LIABILITY-AND-EQUITY> 2,766,237
<SALES> 325,791
<TOTAL-REVENUES> 325,791
<CGS> 203,829
<TOTAL-COSTS> 255,256
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,625
<INCOME-PRETAX> 58,056
<INCOME-TAX> 20,644
<INCOME-CONTINUING> 37,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,412
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>All common stock is owned by parent. No EPS required.
</FN>
</TABLE>
