<PAGE>
Page 1 of 20
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, 2000
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.)
800 Cabin Hill Drive, Greensburg, Pennsylvania 15601
Telephone Number - 724-837-3000
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 15, 2000, 24,361,586 shares of the Common Stock (no par
value) of the registrant were outstanding, all of which are held
by Allegheny Energy, Inc., the Company's parent.
<PAGE>
- 2 -
WEST PENN POWER COMPANY AND SUBSIDIARIES
Form 10-Q for Quarter Ended March 31, 2000
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Consolidated Statement of Income -
Three months ended March 31, 2000 and 1999 3
Consolidated Balance Sheet - March 31, 2000
and December 31, 1999 4
Consolidated Statement of Cash Flows -
Three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
PART II--OTHER INFORMATION 19-20
<PAGE>
- 3 -
WEST PENN POWER COMPANY AND SUBSIDIARIES
Consolidated Statement of Income
(Thousands of Dollars)
Three Months Ended
March 31
2000 1999
ELECTRIC OPERATING REVENUES:
Utility $ 257,544 $ 252,008
Nonutility - 65,722
Total Operating Revenues 257,544 317,730
OPERATING EXPENSES:
Operation:
Fuel 176 61,013
Purchased power and exchanges, net 139,927 46,828
Other 30,236 44,878
Maintenance 9,144 24,713
Depreciation and amortization 15,591 31,688
Taxes other than income taxes 12,621 20,773
Federal and state income taxes 13,802 29,163
Total Operating Expenses 221,497 259,056
Operating Income 36,047 58,674
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 56 63
Other income, net 366 2,161
Total Other Income and Deductions 422 2,224
Income Before Interest Charges 36,469 60,898
INTEREST CHARGES:
Interest on long-term debt 15,911 15,108
Other interest 703 956
Allowance for borrowed funds used during
construction and interest capitalized (198) (665)
Total Interest Charges 16,416 15,399
CONSOLIDATED NET INCOME $ 20,053 $ 45,499
See accompanying notes to consolidated financial statements.
<PAGE>
- 4 -
WEST PENN POWER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS: 2000 1999
Property, Plant, and Equipment:
<S> <C> <C>
Utility plant $ 1,547,795 $ 1,537,962
Nonutility plant 14,072 14,072
Construction work in progress 47,061 45,450
1,608,928 1,597,484
Accumulated depreciation (515,723) (506,416)
1,093,205 1,091,068
Investments and Other Assets 493 525
Current Assets:
Cash and temporary cash investments 5,412 19,288
Accounts receivable:
Electric service 128,251 132,691
Affiliated and other 25,479 16,299
Allowance for uncollectible accounts (16,578) (16,077)
Notes receivable from affiliates 77,650 80,800
Materials and supplies - at average cost:
Operating and construction 18,329 16,200
Deferred income taxes 5,824 15,571
Prepaid taxes 28,157 1,628
Regulatory assets 23,407 23,957
Other 570 1,531
296,501 291,888
Deferred Charges:
Regulatory assets 460,597 467,982
Unamortized loss on reacquired debt 3,508 3,621
Other 7,554 9,681
471,659 481,284
Total Assets $ 1,861,858 $ 1,864,765
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 65,842 $ 70,021
Other paid-in capital 3,445 -
Retained earnings 29,690 9,637
98,977 79,658
Long-term debt and QUIDS 950,862 966,026
1,049,839 1,045,684
Current Liabilities:
Long-term debt due within one year 56,284 49,734
Accounts payable 44,222 55,267
Accounts payable to affiliates 102,042 97,847
Taxes accrued:
Federal and state income 16,359 5,276
Other 5,562 10,674
Interest accrued 5,414 10,017
Adverse power purchase commitments 25,099 24,895
Other 5,567 5,925
260,549 259,635
Deferred Credits and Other Liabilities:
Unamortized investment credit 21,610 21,847
Deferred income taxes 209,612 211,369
Regulatory liabilities 14,962 15,126
Adverse power purchase commitments 297,318 303,935
Other 7,968 7,169
551,470 559,446
Total Capitalization and Liabilities $ 1,861,858 $ 1,864,765
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- 5 -
WEST PENN POWER COMPANY
Consolidated Statement of Cash Flows
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Consolidated net income $ 20,053 $ 45,499
Depreciation and amortization 15,591 31,688
Deferred investment credit and income taxes, net 302 9,857
Unconsolidated subsidiaries' dividends in excess of earnings 33 1,353
Allowance for other than borrowed funds used
during construction (56) (63)
Changes in certain assets and liabilities:
Accounts receivable, net (4,239) (63,780)
Materials and supplies (2,129) (6,061)
Prepaid taxes (26,529) (18,172)
Accounts payable (6,850) 23,763
Taxes accrued 5,971 13,488
Interest accrued (4,603) (4,250)
Other, net 5,710 (10,374)
3,254 22,948
CASH FLOWS FROM INVESTING:
Utility construction expenditures (less allowance for
other than borrowed funds used during construction) (14,647) (15,350)
Nonutility construction expenditures - (1,255)
(14,647) (16,605)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt (8,628) -
Restricted funds 2,995 -
Short-term debt, net - 8,431
Notes payable to affiliates - 44,700
Notes receivable from affiliates 3,150 -
Dividends on capital stock:
Preferred stock - (793)
Common stock - (57,006)
(2,483) (4,668)
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (13,876) 1,675
Cash and temporary cash investments at January 1 19,288 4,523
Cash and temporary cash investments at March 31 $ 5,412 $ 6,198
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized) $2,399 $19,302
Income taxes 2,220 818
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- 6 -
WEST PENN POWER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. West Penn Power Company (the Company) is a wholly-owned
subsidiary of Allegheny Energy, Inc. The Company's Notes to
Consolidated Financial Statements in its Annual Report on Form 10-
K for the year ended December 31, 1999 should be read with the
accompanying consolidated financial statements and the following
notes. With the exception of the December 31, 1999 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
contain all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the Company's financial
position as of March 31, 2000, and the results of operations and
cash flows for the three months ended March 31, 2000 and 1999.
Certain prior period amounts in these notes have been revised for
comparative purposes.
2. 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 owned 45% of the common stock of Allegheny
Generating Company (AGC) through November 17, 1999. On November
18, 1999, the Company transferred its 45% ownership in AGC to
Allegheny Energy Supply, LLC (Allegheny Energy Supply) at book
value as allowed by the final settlement in the Pennsylvania
restructuring case. Affiliates of the Company (Monongahela Power
Company and The Potomac Edison Company) own the remainder. AGC
was reported by the Company in its financial statements using the
equity method of accounting. AGC owns an undivided 40% interest,
840 megawatts (MW), in the 2,100-MW pumped-storage hydroelectric
station in Bath County, Virginia, operated by the 60% owner,
Virginia Electric and Power Company, a nonaffiliated utility.
Following is a summary of income statement information for
AGC for the three months ended March 31, 1999:
Three Months Ended
March 31, 1999
(Thousands of Dollars)
Electric operating revenues $17,857
Operation and maintenance expense 1,611
Depreciation 4,245
Taxes other than income taxes 1,132
Federal income taxes 2,414
Interest charges 3,403
Other income, net (1)
Net income $ 5,053
<PAGE>
- 7 -
Because of the transfer of the Company's ownership interest
in AGC to Allegheny Energy Supply, the Company had no share
of the earnings of AGC in the first quarter of 2000. The
Company's share of the equity in earnings was $2.3 million
for the three months ended March 31, 1999, and is included in
other income, net, on the Company's Consolidated Statement of
Income.
4. The Consolidated Balance Sheet includes the amounts listed
below for generation assets not subject to SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation."
March December
2000 1999
(Millions of Dollars)
Property, plant and equipment at
original cost $9.1 $9.1
Amounts under construction included above - -
Accumulated depreciation (1.1) (1.1)
5. On November 18, 1999, the Company transferred its generating
capacity to Allegheny Energy Supply at book value as allowed by
the final settlement in the Company's Pennsylvania restructuring
case. The net assets transferred in 1999 to Allegheny Energy
Supply are shown below:
(Millions of Dollars)
Property, plant, and equipment, net
of accumulated depreciation $920.3
Investment in Allegheny Generating Company 71.5
Other assets 120.7
Liabilities 421.1
The Company made a liquidating dividend up to Allegheny
Energy, Inc. for its ownership interest in Allegheny Energy
Supply. The Company no longer has any ownership interest in
generating assets or contractual rights to generating
capacity other than those arising under the Public Utility
Regulatory Policies Act of 1978. The effect of this
liquidating dividend was to reduce the Company's common
equity by $691.4 million.
A true-up of $4.2 million to the amount transferred in 1999
was recorded in the first quarter of 2000 and reduced the
Company's common stock from $70.0 million at December 31,
1999 to $65.8 million at March 31, 2000.
6. The Company's principal business segments were utility and
nonutility operations. The utility operation now does business as
Allegheny Power collectively with its affiliates Monongahela
Power Company and The Potomac Edison Company. Allegheny Power is
involved in the delivery (transmission and distribution) and
procurement of electric energy subject to federal and state
traditional utility price regulation. Also, Allegheny Power is
involved in generation of electric energy in jurisdictions which
have not yet implemented deregulation of electric generation and,
with Monongahela Power Company's purchase of West Virginia Power
in December 1999, is now involved in the procurement and delivery
of natural gas. Nonutility operations during 1999 consisted
primarily of costs and revenues associated with the two-thirds of
generating capacity deregulated effective January 1, 1999 under
the Customer Choice Act in Pennsylvania.
<PAGE>
- 8 -
Business segment information is summarized below. Significant
transactions between reportable segments are eliminated to
reconcile the segment information to consolidated amounts. The
identifiable assets information does not reflect the elimination
of intercompany balances or transactions which are eliminated in
the Company's consolidated financial statements.
Three Months Ended
March 31
2000 1999
(Thousands of Dollars)
Operating Revenues:
Utility $257,544 $253,784
Nonutility 135,897
Eliminations (71,951)
Depreciation and amortization:
Utility 15,591 18,336
Nonutility 13,352
Federal and State Income Taxes:
Utility 13,802 17,812
Nonutility 11,351
Operating Income:
Utility 36,047 37,182
Nonutility 21,492
Interest Charges and Preferred Dividends:
Utility 6,416 10,407
Nonutility 5,786
Consolidated Net Income:
Utility 20,053 29,787
Nonutility 15,712
Capital Expenditures:
Utility 14,647 15,413
Nonutility 1,255
March 31 December 31
2000 1999
Identifiable Assets:
Utility $1,861,858 $1,864,746
Nonutility 19
7. All of the employees of Allegheny Energy are employed by
Allegheny Energy Service Corporation (AESC), which performs
services at cost for the Company and its affiliates in accordance
with the Public Utility Holding Company Act of 1935. Through
AESC, the Company is responsible for its proportionate share of
services provided by AESC. The total billings by AESC (including
capital) to the Company for each of the first quarters of 2000
and 1999 were $32.8 million, and $47.3 million, respectively.
<PAGE>
- 9 -
8. The Pennsylvania Public Utility Commission (Pennsylvania
PUC) order for restructuring authorized recognition of an
additional Competitive Transition Charge (CTC) regulatory
asset (Additional CTC Regulatory Asset) to reduce the adverse
effects, if any, that competition will have on the Company during
the years 1999 to 2002. No Additional CTC Regulatory Asset was
recorded by the Company as of March 31, 2000.
<PAGE>
- 10 -
WEST PENN POWER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF FIRST QUARTER OF 2000 WITH FIRST QUARTER OF 1999
The Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations in West Penn Power Company's (the Company)
Annual Report on Form 10-K for the year ended December 31, 1999
should be read with the following Management's Discussion and
Analysis information.
Factors That May Affect Future Results
Management's discussion and analysis of financial condition
and results of operations contains forecast information items
that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. These include
statements with respect to deregulation activities in
Pennsylvania and results of operations. All such forward-looking
information is necessarily only estimated. There can be no
assurance that actual results will not materially differ from
expectations. Actual results have varied materially and
unpredictably from past expectations.
Factors that could cause actual results to differ materially
include, among other matters, electric utility restructuring,
including ongoing state and federal activities; developments in
the legislative, regulatory, and competitive environments in
which the Company operates, including regulatory proceedings
affecting rates charged by the Company; environmental,
legislative, and regulatory changes; future economic conditions;
the Company's ability to compete in unregulated energy markets;
and other circumstances that could affect anticipated revenues
and costs such as significant volatility in the market price of
wholesale power, unscheduled maintenance or repair requirements,
weather, and compliance with laws and regulations.
Significant Events in the First Quarter of 2000
* Unregulated Generating Affiliate
During 1999, Allegheny Energy obtained the necessary
regulatory approvals to form an unregulated generating
subsidiary, Allegheny Energy Supply Company, LLC (Allegheny
Energy Supply). On November 18, 1999, the Company transferred
its generating capacity, which totaled 3,778 megawatts (MW), to
Allegheny Energy Supply at book value as allowed by the final
settlement in the Company's Pennsylvania restructuring case. The
Company continued to be responsible for providing generation to
meet the regulated electric load of its retail customers who did
not have the right to choose their generation supplier until
January 2, 2000. On January 2, 2000, the final one-third of the
Company's regulated customers were permitted to choose an
alternate generation supplier.
<PAGE>
- 11 -
Review of Operations
EARNINGS SUMMARY
Consolidated net income for the first quarter of 2000 was
$20.1 million compared with $45.5 million for the corresponding
1999 period. The decrease in consolidated net income for the
first quarter of 2000 was due to the settlement agreement in
Pennsylvania which permitted the Company to transfer its 3,778
megawatts (MW) of generating capacity at book value to Allegheny
Energy Supply, an unregulated wholly owned subsidiary of
Allegheny Energy, Inc. (Allegheny Energy), the Company's Parent.
As a result of the transfer, the Company no longer has generation
available for sale. The Company's energy delivery or wires
business will continue to be an important part of the Company's
business. Current earnings are supported by the beneficial
effects of transition cost recovery as authorized in the
Company's Pennsylvania restructuring settlement.
SALES AND REVENUES
Total operating revenues for the first quarter of 2000 and
1999 were as follows:
Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Utility revenues:
Regulated $241.8 $239.8
Choice 10.8 6.8
Bulk power .2 1.1
Transmission and other energy services 4.7 6.1
Total utility revenues 257.5 253.8
Nonutility revenues 135.9
Elimination between utility and nonutility (72.0)
Total operating revenues $257.5 $317.7
Regulated revenues include revenues from all the Company's
customers eligible to choose an alternate energy supplier but
electing not to do so. Utility choice revenues represent
transmission and distribution revenues from the Company's
franchised customers (customers in the Company's distribution
territory) who chose another supplier to provide their energy
needs. Pennsylvania deregulation gave the Company's regulated
customers the ability to choose another energy supplier. In the
first quarter of 2000, all of the Company's regulated customers
had the ability to choose, and in the first quarter of 1999, two-
thirds of the Company's customers had the ability to choose. At
March 31, 2000, less than 2% of the Company's customers chose
alternate energy suppliers.
As a result of the transfer of the Company's generation to
Allegheny Energy Supply, an unregulated affiliate, revenues from
utility bulk power sales and nonutility sales have decreased due
to the Company no longer having generation available for sale.
<PAGE>
- 12 -
The 1999 first quarter elimination between utility and
nonutility revenues is necessary to remove the effect of
affiliated revenues.
OPERATING EXPENSES
Fuel expenses for the first quarter of 2000 and 1999 were as
follows:
Fuel Expenses
Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Utility operations $.2 $19.5
Nonutility operations 41.5
Total fuel expenses $.2 $61.0
Total fuel expenses for the first quarter of 2000 decreased
due to the transfer of the Company's generating capacity to
Allegheny Energy Supply.
Purchased power and exchanges, net, represents power
purchases from and exchanges with other companies, including
affiliated companies, and purchases from qualified facilities
under the Public Utility Regulatory Policies Act of 1978 (PURPA),
and prior to November 18, 1999 capacity charges paid to Allegheny
Generating Company (AGC).
Purchased Power and Exchanges, Net
Three Months Ended
March 31
2000 1999
Utility operations: (Millions of Dollars)
Purchased power:
From PURPA generation* $ 10.0 $ 9.5
Other 127.7 14.7
Power exchanges, net 1.5 2.5
AGC capacity charges 3.2
Energy and spinning reserve charges .7 1.2
Total utility operations 139.9 $31.1
Nonutility operations purchased power 18.7
Elimination (3.0)
Purchased power and exchanges, net $139.9 $46.8
*PURPA cost (cents per kWh) 4.6 cents 4.5 cents
The increase in other utility operations purchased power in
2000 was due primarily to the Company's purchase of power from
Allegheny Energy Supply in order to provide energy to its
customers eligible to choose an alternate supplier, but electing
not to do so. The generation previously available to serve those
customers has been freed up by the Customer Choice Act in
Pennsylvania and has been transferred by the Company to Allegheny
Energy Supply.
<PAGE>
- 13 -
AGC capacity charges and nonutility operations purchased
power decreased due to the transfer of the Company's generation,
including its ownership interest in AGC, to Allegheny Energy
Supply on November 18, 1999.
The 1999 first quarter elimination between utility and
nonutility purchased power is necessary to remove the effect of
affiliated purchased power expenses.
Other operation expenses for the first quarter of 2000 and
1999 were as follows:
Other Operation Expenses Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Utility operations $30.2 $33.9
Nonutility operations 13.6
Elimination (2.6)
Total other operation expenses $30.2 $44.9
The decrease in total other operation expenses of $14.7
million was primarily due to the transfer of the Company's
generation to Allegheny Energy Supply.
The 1999 first quarter elimination between utility and
nonutility operation expenses is necessary to remove the effect
of affiliated transmission purchases.
Maintenance expenses for the first quarter of 2000 and 1999
were as follows:
Maintenance Expenses
Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Utility operations $ 9.1 $15.2
Nonutility operations 9.5
Total maintenance expenses $ 9.1 $24.7
The decrease in total maintenance expenses of $15.6 million
was primarily due to the the transfer of the Company's generation
to Allegheny Energy Supply. In 1999, maintenance expenses
represented costs incurred to maintain the power stations, the
transmission and distribution (T&D) system, and general plant,
and reflected 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. Current and future maintenance
expenses will be to support the Company's delivery or wires
business.
<PAGE>
- 14 -
Depreciation and amortization expenses for the first quarter
of 2000 and 1999 were as follows:
Depreciation and Amortization Expenses
Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Utility operations $15.6 $18.3
Nonutility operations 13.4
Total depreciation and amortization expenses $15.6 $31.7
Total depreciation and amortization expenses in the first
quarter of 2000 decreased $16.1 million primarily due to the
transfer of generation assets to Allegheny Energy Supply.
Taxes other than income taxes for the first quarter of 2000
and 1999 were as follows:
Taxes Other Than Income Taxes
Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Utility operations $12.6 $14.4
Nonutility operations 6.4
Total taxes other than income taxes $12.6 $20.8
Total taxes other than income taxes decreased $8.2 million
in the first quarter of 2000 due primarily to the transfer of
West Virginia Business and Occupation taxes, certain property
taxes, and gross receipts taxes to Allegheny Energy Supply.
The first quarter decrease in federal and state income taxes
was primarily due to reduced taxable income.
Other income, net decreased $1.8 million due primarily to
the transfer of the Company's ownership interest in AGC to
Allegheny Energy Supply. Prior to this transfer, the Company
reported AGC in its financial statements using the equity method
of accounting.
<PAGE>
- 15 -
Interest on long-term debt and other interest for the first
quarter of 2000 and 1999 were as follows:
Interest Expense
Three Months Ended
March 31
2000 1999
(Millions of Dollars)
Interest on long-term debt:
Utility operations $15.9 $ 9.6
Nonutility operations 5.5
Total interest on long-term debt 15.9 15.1
Other interest:
Utility operations .7 .4
Nonutility operations .6
Total other interest expense .7 1.0
Total interest expense $16.6 $16.1
In November 1999, the service obligation for $231 million of
pollution control debt was assumed by Allegheny Energy Supply in
conjunction with the transfer of the Company's generating assets
to Allegheny Energy Supply. However, the pollution control debt
also remains an obligation of the Company. Allegheny Energy
Supply will indemnify the Company for any debt service the
Company may incur. The Company receives credit for the pollution
control debt, including accrued interest expense, through equity
accounting. Other interest expense reflects changes in the
levels of short-term debt maintained by the Company throughout
the year, as well as the associated interest rates.
Allowance for borrowed funds used during construction and
interest capitalized decreased $.5 million in the first quarter
of 2000 due primarily to the transfer of generation and
generation related construction activity to Allegheny Energy
Supply.
Financial Condition and Requirements
The Company's discussion on Financial Condition,
Requirements, and Resources and Significant Continuing Issues in
its Annual Report on Form 10-K for the year ended December 31,
1999 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 legal actions and
regulations and uncertainties related to environmental matters.
* Financings
In the first quarter of 2000, the Company redeemed $8.6
million of transition bonds.
<PAGE>
- 16 -
* Impact of Change in Short-term Interest Rate
A one percent change in the short-term borrowing interest
rate would have no effect on the Company's interest expense. The
Company has no projected short-term borrowings for the nine
months ended December 31, 2000.
* Electric Energy Competition
The electricity supply segment of the electric industry in
the United States is becoming increasingly competitive. The
national Energy Policy Act of 1992 deregulated the wholesale
exchange of power within the electric industry by permitting the
Federal Energy Regulatory Commission (FERC) to compel electric
utilities to allow third parties to sell electricity to wholesale
customers over their transmission systems. Since 1992, the
wholesale electricity market has become more competitive as
companies are engaging in nationwide power trading. In addition,
an increasing number of states have taken active steps toward
allowing retail customers the right to choose their electricity
supplier. The Company and its parent, Allegheny Energy, have been
advocates of federal legislation to create competition in the
retail electricity markets to avoid regional dislocations and
ensure level playing fields. Legislation before the U.S.
Congress to restructure the nation's electric utility industry
cleared an important hurdle on October 28, 1999, when a House
Commerce Committee subcommittee gave its approval to a bill. The
bill will now move on to the full Commerce Committee.
In the absence of federal legislation, state-by-state
implementation of deregulation of electric generation is under
way. The five states in which the Company and its affiliates
serve customers are at various stages of implementation or
investigation of programs that allow customers to choose their
electric supplier. Pennsylvania is furthest along with a retail
program in place. Maryland has approved a deregulation plan for
The Potomac Edison Company (Potomac Edison) which will begin July
1, 2000. West Virginia passed legislation approving a
deregulation plan for Potomac Edison and Monongahela Power
Company (Monongahela Power) which is expected to be implemented
in mid-2001. Ohio and Virginia have passed legislation to adopt
customer choice which requires further action by the regulatory
agencies in those states regarding specific deregulation plans
for the Company's' affiliates.
Activities at the Federal Level
Allegheny Energy continues to seek enactment of federal
legislation to bring choice to all retail electric customers,
deregulate the generation and sale of electricity on a national
level, and create a more liquid, free market for electric power.
Fully meeting challenges in the emerging competitive environment
will be difficult for Allegheny Energy unless certain outmoded
and anti-competitive laws, specifically the Public Utility
Holding Company Act of 1935 (PUHCA) and Section 210 (Mandatory
Purchase Provisions) of PURPA, are repealed or significantly
revised. Allegheny Energy continues to advocate the repeal of
PUHCA and Section 210 of PURPA on the grounds that they are
obsolete and anti-competitive and that PURPA results in utility
customers paying above-market prices for power. H.R. 2944, which was
<PAGE>
- 17 -
sponsored by U.S. Representative Joe Barton, was favorably
reported out of the House Commerce Subcommittee on Energy and
Power. While the bill does not mandate a date certain for
customer choice, several key provisions favored by the Company
are included in the legislation, including an amendment that
allows existing state restructuring plans and agreements to
remain in effect. Other provisions address important Allegheny
Energy priorities by repealing PUHCA and the mandatory purchase
provisions of PURPA. Consensus remains elusive, with significant
hurdles remaining in both houses of Congress. It is uncertain
whether momentum on the issue will result in legislation in 2000.
Pennsylvania Activities
As of January 2, 2000, all electricity customers in
Pennsylvania had the right to choose their electric suppliers.
The number of customers who have switched suppliers and the
amount of electrical load transferred in Pennsylvania far exceed
that of any other state so far. However, for the Company, less
than 12,500 of its 680,500 Pennsylvania customers have chosen an
alternate energy supplier. The Company has retained about 98% of
its Pennsylvania customers through April 1, 2000. More than 100
electric generation suppliers have been licensed to sell to
retail customers in Pennsylvania.
The status of electric energy competition in Ohio, West
Virginia, Virginia, and Maryland in which affiliates of the
Company serve are as follows:
Ohio Activities
On June 22, 1999, the Ohio General Assembly passed
legislation to restructure its electric utility industry.
Governor Taft added his signature soon thereafter, and all of the
state's customers will be able to choose their electricity
supplier starting January 1, 2001, beginning a five-year
transition to market rates. Total electric rates will be frozen
over that period, and residential customers are guaranteed a 5%
cut in the generation portion of their rate. The determination of
stranded cost recovery will be handled by the Public
Utilities Commission of Ohio (Ohio PUC). On January 3, 2000,
Monongahela Power filed a transition plan with the Ohio PUC,
including its claim for recovery of stranded costs of $21.3
million. The Ohio PUC is expected to hold hearings on Monongahela
Power's transition plan filing and issue a decision by October
2000. Rulemaking proceedings to implement customer choice are
ongoing at the Ohio PUC.
West Virginia Activities
In March 1998, legislation was passed by the West Virginia
Legislature that directed the W.Va. PSC to meet with all
interested parties to develop a restructuring plan which would
meet the dictates and goals of the legislation. In January 2000,
the W.Va. PSC submitted a restructuring plan to the legislature
for approval that would open full retail competition on January
1, 2001. Generation would be deregulated and electricity rates
initially would be reduced for large commercial and industrial
customers and then frozen for all customers
<PAGE>
- 18 -
for four years with power supply rates gradually transitioning to market
rates over the next six years. Other highlights of the
plan include the ability to transfer generation assets, the
transfer of control of transmission to a regional transmission
organization by 2003, a utility-funded rate stabilization
deferral mechanism to offset residential and small commercial
rates in later years, a wires charge for customers who shop, and
a systems benefit charge to assist low income customers and
displaced employees in utility and related industries. The plan
was endorsed by virtually all of the interested parties,
including Monongahela Power and Potomac Edison. On March 11,
2000, the West Virginia Legislature approved the Commission's
plan, but assigned the tax issues surrounding the plan to the
2000 Legislative Interim Committees to recommend the necessary
tax changes involved and come back to the Legislature in 2001 for
approval of those changes and authority to implement the plan.
The start date of competition is contingent upon the necessary
tax changes being made and approved by the legislature.
Monongahela Power and Potomac Edison expect that implementation
of the deregulation plan will occur in mid-2001. The W. Va. PSC
is currently in the process of developing the rules under which
competition will occur. Associated rulemaking proceedings are
scheduled for the remainder of this year.
Virginia Activities
On March 25, 1999, Governor Gilmore signed the Virginia
Electric Utility Restructuring Act (Restructuring Act) passed by
the Virginia General Assembly. All utilities must submit a
restructuring plan by January 1, 2001, to be effective on January
1, 2002. Customer choice will be phased in beginning on January
1, 2002, with full customer choice by January 1, 2004. The
Restructuring Act was amended during the 2000 General Assembly
legislative session. In addition to a number of clarifying and
technical changes, the amendments direct the State Corporation
Commission to prepare for legislative approval a plan for
competitive metering and billing and authorize the Commission to
implement a consumer education program on electric choice funded
through the Commission's regulatory tax. Legislation was also
adopted in 2000 governing the ability of rural electric
cooperatives to engage in competitive businesses, including
certain restrictions on the competitive sale of electricity by
cooperatives and their affiliates.
Various rulemaking proceedings to implement customer choice
are ongoing before the State Corporation Commission.
Maryland Activities
On September 23, 1999, a settlement agreement between
Potomac Edison, the Staff of the Maryland Public Service
Commission (Maryland PSC), and other parties working to implement
customer choice and deregulation of electric generation for
Potomac Edison in Maryland was filed with the Maryland PSC. On
December 23, 1999, the Maryland PSC approved the settlement
agreement, which provides nearly all of Potomac Edison's 211,000
Maryland customers with the ability to choose an electric
generation supplier starting July 1, 2000. Potomac Edison filed
an application on December 15, 1999, to transfer its Maryland
generating assets at book value to an affiliate in accordance
with Section 7-508 of the Electric Customer Choice and
Competition Act of 1999. A Maryland PSC decision approving the
transfer of the generating assets is expected prior to July 1,
2000.
<PAGE>
- 19 -
WEST PENN POWER COMPANY AND SUBSIDIARIES
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 2000
ITEM 1. LEGAL PROCEEDINGS
As previously reported, on December 17, 1999, AES/Beaver
Valley, Inc., (AES/BV) filed a demand for arbitration with the
American Arbitration Association. AES/BV requested a declaratory
judgment that the Electric Energy Purchase Agreement (EEPA)
approved by the Pennsylvania Public Utility Commission in 1986
continues to govern the transaction between the Company and
AES/BV for the sale of up to 125 megawatt-hours (MWh) per hour of
power as set forth in the EEPA, even if AES/BV's proposed
improvements to the plant to comply with the more rigorous NOx
standards result in an increase in the amount of energy the plant
produces annually. AES/BV also requested an award of its
attorneys fees and costs.
On April 4, 2000, an arbitrator granted the declaratory
judgment request of AES/BV but denied its request for attorneys
fees and costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
1. (a) Date and Kind of Meeting:
The annual meeting of shareholders was held at
Greensburg, Pennsylvania, on April 19, 2000. 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 Alan J. Noia
William L. Bennett Jay S. Pifer
Wendell F. Holland Steven H. Rice
Phillip E. Lint Gunnar E. Sarsten
Frank A. Metz, Jr. Peter J. Skrgic
Michael P. Morrell
<PAGE>
- 20 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed on behalf of
the Company for the quarter ended March 31, 2000.
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/ T. J. KLOC
T. J. Kloc, Controller
(Chief Accounting Officer)
May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
West Penn Power Company Consolidated
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,303
<SECURITIES> 2,109
<RECEIVABLES> 153,730
<ALLOWANCES> 16,578
<INVENTORY> 18,329
<CURRENT-ASSETS> 296,501
<PP&E> 1,608,928
<DEPRECIATION> 515,723
<TOTAL-ASSETS> 1,861,858
<CURRENT-LIABILITIES> 260,549
<BONDS> 950,862
0
0
<COMMON> 65,842
<OTHER-SE> 33,135
<TOTAL-LIABILITY-AND-EQUITY> 1,861,858
<SALES> 257,544
<TOTAL-REVENUES> 257,544
<CGS> 179,483
<TOTAL-COSTS> 207,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,416
<INCOME-PRETAX> 33,855
<INCOME-TAX> 13,802
<INCOME-CONTINUING> 20,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,053
<EPS-BASIC> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>*All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
