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CENTRAL OHIO COAL COMPANY
QUARTERLY REPORT PER REQUIREMENTS
OF HOLDING COMPANY ACT RELEASE NO. 26573
FOR THE QUARTER ENDED MARCH 31, 1999
CONTENTS
Page
Statements of Income and Retained Earnings 1
Balance Sheets 2-3
Information Concerning Mine Operations and
Capital Improvements 4
Calculation of Cost of Capital and
Statement of Cost of Commercial Coal Sold and Shipped 5
Statement of Cost of Operation 6
Analysis of Mining Plant in Service 7
Calculation of Allowed Cost of Capital -
Effective April 1, 1999 8
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CENTRAL OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1999
(UNAUDITED)
(in thousands)
OPERATING REVENUES $26,193
COST OF OPERATION 26,906
OPERATING LOSS (713)
NONOPERATING INCOME 818
INCOME BEFORE FEDERAL INCOME TAXES 105
FEDERAL INCOME TAXES 105
NET INCOME $ -
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED MARCH 31, 1999
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $1
NET INCOME -
BALANCE AT END OF PERIOD $1
The common stock of the Company is wholly owned by Ohio Power Company.
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
March 31,
1999
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $ 41,651
Accumulated Depreciation and Amortization 38,117
NET MINING PLANT 3,534
OTHER PROPERTY AND INVESTMENTS 12,527
CURRENT ASSETS:
Cash and Cash Equivalents 59,561
Accounts Receivable:
General 246
Affiliated Companies 11,346
Coal 99
Materials and Supplies 7,689
Prepayments 104
TOTAL CURRENT ASSETS 79,045
DEFERRED INCOME TAXES 50,167
REGULATORY ASSETS 1,630
DEFERRED CHARGES 450
TOTAL $147,353
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
March 31,
1999
(in thousands)
CAPITALIZATION AND LIABILITIES
SHAREHOLDER'S EQUITY:
Common Stock - Par Value $0.10:
Authorized - 100,000 Shares
Outstanding - 69,000 Shares $ 7
Retained Earnings 1
TOTAL SHAREHOLDER'S EQUITY 8
OTHER NONCURRENT LIABILITIES:
Accrued Postretirement Benefits Other Than Pensions 47,744
Accrued Reclamation Costs 40,302
Mine Closure 16,989
Other Operating Reserves 24,828
TOTAL OTHER NONCURRENT LIABILITIES 129,863
CURRENT LIABILITIES:
Accounts Payable:
General 3,508
Affiliated Companies 326
Taxes Accrued 8,216
Accrued Reclamation Costs 2,521
Accrued Vacation Pay 819
Accrued Rent 306
Workers' Compensation Claims 795
Other 70
TOTAL CURRENT LIABILITIES 16,561
DEFERRED CREDITS 921
TOTAL $147,353
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CENTRAL OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED MARCH 31, 1999
TAXES
As discussed in Note 2, of the Notes to Financial Statements in
the 1998 Annual Report, the deductibility of certain interest
deductions related to American Electric Power's corporate owned life
insurance (COLI) program for taxable years 1991-1996 is under review
by the Internal Revenue Service (IRS). Adjustments have been or will
be proposed by the IRS disallowing COLI interest deductions. A
disallowance of COLI interest deductions through March 31, 1999 would
reduce earnings by approximately $10.8 million (including interest).
The Company has made no provision for any possible earnings impact
from this matter.
In 1998 the Company made payments of taxes and interest
attributable to COLI interest deductions for taxable years 1991-1997
to avoid the potential assessment by the IRS of any additional above
market rate interest on the contested amount. These payments to the
IRS are included on the balance sheet in other property and
investments pending the resolution of this matter. The Company will
seek refund, either administratively or through litigation, of all
amounts paid plus interest.
In order to resolve this issue, the Company filed suit against
the United States in the US District Court for the Southern District
of Ohio in March 1998. Management believes that it has a meritorious
position and will vigorously pursue this lawsuit. In the event the
resolution of this matter is unfavorable, the Company expects to
recover from Ohio Power Company (OPCo) all of its costs under the
terms of the coal supply agreement.
LEASE BUYOUT
In April 1999 the Company bought out its only remaining lease for
$25.7 million. The lease, which was for a dragline, had been
accounted for as an operating lease and was not reflected on the
balance sheet. After taking into account amounts previously provided
for the lease buyout and the unamortized gain from the prior sale and
leaseback of the dragline, the Company recorded in mining plant an
asset of $9.7 million for the dragline.
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CENTRAL OHIO COAL COMPANY
CALCULATION OF COST OF CAPITAL AND STATEMENT OF COST OF COMMERCIAL COAL SOLD AND SHIPPED
FOR THE QUARTER ENDED MARCH 31, 1999
(in thousands, except as noted)
<CAPTION> January through
March
1999
<S> <C>
I. Calculation of Cost-of-Capital Compensation:
A. Equity Investment at Beginning of Period:
Common Stock $ 7
B. Rate of Return Allowable per HCAR No. 26573:
10.51% per annum, 2.6275% per quarter .026275
C. Earnings Allowable: (re investment in item A)
1. Current Quarter $ -
2. Year-to-Date $ -
D. Net Income per Statement of Income $ -
Add: Interest Charges -
Less: Nonoperating Income 818
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ (818)
2. Year-to-Date $ (818)
II. Coal Billing Calculation:
A. Total Operating Expenses (a) $ 27,011
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I (818)
C. Cost Applicable to Current Quarter Coal Billings 26,193
Less: Cost Applicable to Coal Sold to Unaffiliated Companies -
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 26,193
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 351,909
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $74.43
(a) As represented by "Cost of Operation" plus "Federal Income Taxes" reported in Statements of Income.
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CENTRAL OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED MARCH 31, 1999
(in thousands)
Direct Labor-UMW* $ 469
Indirect Labor-UMW* 2,116
Benefits-UMW* 2,364
Salaries and Benefits-Nonunion 1,319
Operating Supplies 1,854
Repair Parts and Materials 1,499
Electricity and Other Utilities 709
Outside Services-Maintenance, Haulage and Reclamation 361
Taxes Other Than Federal Income Taxes** 427
Rental of Equipment 964
Depreciation, Depletion and Amortization 1,923
Mining Cost Normalization*** (1,507)
Reclamation 2,985
Other Production Costs 11,382
Subtotal 26,865
Transfers of Production Costs (to)/from Coal Inventory 41
Total $26,906
* United Mine Workers of America.
** Excludes FICA, Federal Unemployment and State Unemployment Taxes.
These costs are reflected in employee benefits.
*** Represents the deferral/accrual required to establish a selling
price based on forecasted results for the year.
The amount of mining cost normalization is established on an
"overall" company basis(i.e., not itemized) and is eliminated by
year-end.
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CENTRAL OHIO COAL COMPANY
ANALYSIS OF MINING PLANT IN SERVICE
AND RELATED ACCUMULATED PROVISIONS FOR
DEPRECIATION AND AMORTIZATION
March 31, 1999
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 324 $ - $ 324
Mining Structures and Equipment 38,048 35,825 2,223
Coal Interests (net of depletion) 987 - 987
Leasehold Improvements 2,292 2,292 -
Total Mining Plant in Service $41,651 $38,117 $3,534
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OHIO POWER COMPANY'S (OPCo's) ACTIVE COAL MINES
CENTRAL OHIO COAL COMPANY; SOUTHERN OHIO COAL - MEIGS;
AND WINDSOR COAL COMPANY
ALLOWED AFTER-TAX COMPOSITE COST-OF-CAPITAL IS 10.43%
EFFECTIVE 4-1-99
THE 10.43% IS OPCo's WEIGHTED AVERAGE COST-OF-CAPITAL AND WAS
CALCULATED AS FOLLOWS:
CAPITALIZATION AFTER-TAX
@12/31/98 PERCENT EFFECTIVE WEIGHTED
COMPONENT (000) OF TOTAL COST RATE OF RETURN
Long-term Debt $ 993,647(a) 41.92% 7.38%(c) 3.09%
Preferred Stock 29,220 1.23% 5.00%(c) 0.06%
Common Stock 1,347,681(b) 56.85% 12.81%(d) 7.28%
Total $2,370,548 100.00% 10.43%*
Authorization: HCAR 35-26573 dated 9-13-96
(SEC File No. 70-8611).
(a) Includes long-term debt due in one year and is net of
unamortized debt premium and discount, unamortized debt
expense and unamortized loss on reacquired debt.
(b) Common equity includes premium on preferred stock and
excludes undistributed subsidiary earnings.
(c) Embedded cost at 12/31/98.
(d) No more than the rate allowed by the PUCO in a retail rate
proceeding involving OPCo and settled in 1995.
* Rate will be applied for billing purposes to the twelve
month period commencing April 1, 1999.
