Securities and Exchange Commission
Office of Public Utility Regulation
Division of Investment Management
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
April 28, 1994
Via EDGAR
Re: Conesville Coal Preparation Company
(File No. 70-7018
Columbus Southern Power Company
CIK 0000022198)
Gentlemen:
As a supplement to our March 30, 1994 EDGAR filing of the
fourth quarter 1993 report, Conesville Coal Preparation
Company's 1993 Annual Report which includes a statement
of significant accounting policies is filed herewith.
Very truly yours,
G.C. Dean
American Electric Power
Service Corporation
GCD/clm
<PAGE>
[TEXT]
<PAGE>
C O N E S V I L L E C O A L
P R E P A R A T I O N C O M P A N Y
1993 Annual Report
AMERICAN ELECTRIC POWER SYSTEM<PAGE>
<PAGE>
CONESVILLE COAL PREPARATION COMPANY
Page
CONTENTS
Statements of Income and Statements of Retained Earnings . .. 1
Balance Sheets . . . . . . . . . . .. 2
Statements of Cash Flows . . . . . . . . .. 3
Notes to Financial Statements . . . . . . . .. 4-8
<PAGE>
<PAGE>
<TABLE>
CONESVILLE COAL PREPARATION COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES - Services to Parent Company. . . . $9,371 $9,051 $9,180
OPERATING EXPENSES . . . . . . . . . . . . . . . . . . 9,303 8,967 9,069
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 68 84 111
NONOPERATING INCOME. . . . . . . . . . . . . . . . . . 8 - 3
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . 76 84 114
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . 1 - -
INCOME BEFORE FEDERAL INCOME TAXES . . . . . . . . . . 75 84 114
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . 5 14 44
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 70 $ 70 $ 70
</TABLE>
<TABLE>
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
RETAINED EARNINGS JANUARY 1. . . . . . . . . . . . . . $470 $400 $330
NET INCOME . . . . . . . . . . . . . . . . . . . . . . 70 70 70
RETAINED EARNINGS DECEMBER 31. . . . . . . . . . . . . $540 $470 $400
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONESVILLE COAL PREPARATION COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31,
1993 1992
(in thousands)
ASSETS
<S> <C> <C>
MINING PLANT IN SERVICE . . . . . . . . . . . . . . . . . . . . . $ 648 $ 759
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . 8 4
Accounts Receivable - Affiliated Companies. . . . . . . . . . . 2,671 2,133
Materials and Supplies - at average cost. . . . . . . . . . . . 900 1,027
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 47
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 3,635 3,211
DEFERRED FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . 653 1,025
REGULATORY ASSETS:
Amounts Due From Customers For
Future Federal Income Taxes . . . . . . . . . . . . . . . . . 349 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 10
TOTAL REGULATORY ASSETS . . . . . . . . . . . . . . . . 353 10
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $5,289 $5,005
CAPITALIZATION AND LIABILITIES
SHAREOWNER'S EQUITY:
Common Stock - Par Value $1,000:
Authorized - 500 Shares
Outstanding - 100 Shares. . . . . . . . . . . . . . . . . . . $ 100 $ 100
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . 400 400
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 540 470
TOTAL SHAREOWNER'S EQUITY . . . . . . . . . . . . . . . 1,040 970
OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . 343 443
CURRENT LIABILITIES:
Accounts Payable:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 115
Affiliated Companies. . . . . . . . . . . . . . . . . . . . . 138 84
Accrued Rentals . . . . . . . . . . . . . . . . . . . . . . . . 867 912
Accrued Other Postretirement Benefits . . . . . . . . . . . . . 214 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 351
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 2,013 1,462
DEFERRED GAIN ON SALE OF PLANT. . . . . . . . . . . . . . . . . . 1,893 2,130
COMMITMENTS AND CONTINGENCIES (Note 2)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $5,289 $5,005
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
CONESVILLE COAL PREPARATION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . $ 70 $ 70 $ 70
Adjustments for Noncash Items:
Depreciation . . . . . . . . . . . . . . . . . . . 15 15 15
Deferred Federal Income Taxes. . . . . . . . . . . 23 133 124
Amortization of Deferred Gain on Sale of Plant . . (237) (237) (237)
Changes in Certain Current Assets
and Liabilities:
Accounts Receivable. . . . . . . . . . . . . . . . (538) 242 (212)
Materials and Supplies . . . . . . . . . . . . . . 127 71 51
Accounts Payable . . . . . . . . . . . . . . . . . 326 (140) 124
Accrued Other Postretirement Benefits. . . . . . . 214 - -
Other (net). . . . . . . . . . . . . . . . . . . . . 4 (165) 67
Net Cash Flows From (Used For)
Operating Activities . . . . . . . . . . . . 4 (11) 2
INVESTING ACTIVITIES - Construction Expenditures . . . - - (13)
Net Increase (Decrease) in Cash and Cash Equivalents . 4 (11) (11)
Cash and Cash Equivalents January 1. . . . . . . . . . 4 15 26
Cash and Cash Equivalents December 31. . . . . . . . . $ 8 $ 4 $ 15
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
CONESVILLE COAL PREPARATION COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Regulation. Conesville Coal Preparation Company (the Company
or CCPC), is a wholly-owned subsidiary of Columbus Southern Power Company
(CSPCo), which is a subsidiary of American Electric Power Company, Inc. (AEP
Co., Inc.), a public utility holding company. The Company provides coal
washing services to CSPCo's Conesville generating plant. Coal washing prices
are regulated by the Securities and Exchange Commission (SEC) under the Public
Utility Holding Company Act of 1935 (1935 Act). Prices billed in connection
with coal washing services are sufficient to recover expenses and provide for
a return on CSPCo's equity investment excluding retained earnings.
Basis of Accounting. As a regulated entity, CCPC's financial statements
reflect actions of regulators that may result in the recognition of revenues
and expenses in different time periods than enterprises that are not
regulated. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 71, Accounting for the Effects of Certain Type of Regulation (SFAS
71), regulatory assets and liabilities are recorded to defer expenses or
revenues reflecting such differences.
Coal Washing Agreement. Pursuant to a coal washing agreement with CSPCo, the
Company is obligated to provide coal washing services to CSPCo and entitled to
receive payment for all costs incurred, even under circumstances when such
services are not performed due to a natural disaster, labor unrest or any
other forced or voluntary cessation of operations, either temporary or
permanent.
Mining Plant. Mining plant is stated at original cost and consists primarily
of assets under capital leases net of accumulated amortization.
Cash and Cash Equivalents. Cash and cash equivalents include temporary cash
investments with original maturities of three months or less.
Inventories. Materials and supplies inventories are stated at cost,
determined on a moving-average basis.
Income Taxes. Effective January 1, 1993, the Company adopted the liability
method of accounting for income taxes as prescribed by SFAS 109, Accounting
for Income Taxes. Under this standard, deferred federal income taxes are
provided for all differences between the book cost and tax basis of assets and
liabilities which will result in a future tax consequence. In prior years
deferred federal income taxes were provided for differences between book and
taxable income at statutory rates. As a result of the adoption of SFAS 109,
additional deferred tax liabilities were recorded and in accordance with SFAS
71, corresponding regulatory assets were also recorded. As a result of this
change in accounting effective January 1, 1993, deferred federal income tax
liabilities and regulatory assets increased by $419,000 with no effect on net
income.
Reclassifications. Certain prior-period amounts were reclassified for
comparative purposes.<PAGE>
<PAGE>
2. COMMITMENTS AND CONTINGENCIES:
Construction expenditures for the years 1994 through 1996 are
estimated to be $202,000 and, in connection with the construction program,
commitments have been made.
The Company recovers all costs from CSPCo under the coal washing
agreement.
3. CONTINUATION OF COAL WASHING OPERATIONS:
The Clean Air Act Amendments of 1990 (CAAA) requires significant
reductions in sulfur dioxide and nitrogen oxides emitted from CSPCo's
generating plants. A compliance plan was filed with the Public Utilities
Commission of Ohio (PUCO) which sets forth, as part of a least-cost strategy
for the AEP System, the compliance measures for affected generating units. In
November 1992 the PUCO approved the plan. If fuel switching is employed as a
compliance alternative at CSPCo's Conesville Plant generating units, CCPC's
operations could be shut down. Under the terms of the coal washing agreement,
shutdown costs would be fully recovered from CSPCo.
4. OTHER RELATED-PARTY TRANSACTIONS:
American Electric Power Service Corporation (AEPSC) provides certain
managerial and professional services to AEP System companies including CCPC.
The costs of the services are determined by AEPSC on a direct-charge basis, to
the extent practicable, and on reasonable bases of proration for indirect
costs. The charges for services are made at cost and include no compensation
for the use of equity capital, which is furnished to AEPSC by AEP Co., Inc.
Billings from AEPSC are expensed or capitalized depending on the nature of the
services rendered. AEPSC and its billings are subject to the regulations of
the SEC under the 1935 Act.
5. BENEFIT PLANS:
United Mine Workers of America (UMWA) Pension Plans
The Company contributes to UMWA pension funds to provide pension
benefits for UMWA employees meeting eligibility requirements. Benefits are
based on age at retirement and years of service. As of June 30, 1993, the
UMWA actuary estimates that the Company's share of the UMWA pension plans
unfunded vested liabilities was approximately $523,000. In the event the
Company ceases or significantly reduces operations or contributions to the
pension plans, a withdrawal obligation may be triggered for all or a portion
of its share of the unfunded vested liability. Employer contributions are
based on the number of hours worked, are expensed when paid and totaled
$31,000 in 1993, $32,000 in 1992 and $34,000 in 1991.
AEP System Pension Plan
The Company participates in the AEP pension plan, a trusteed,
noncontributory defined benefit plan covering all employees meeting
eligibility requirements, except participants in the UMWA pension plans.
Benefits are based on service years and compensation levels. Effective
January 1, 1992 employees may retire without reduction of benefits at age 62
and with reduced benefits as early as age 55. Pension costs are allocated by
first charging each System company with its service cost and then allocating
<PAGE>
the remaining pension cost in proportion to its share of the projected benefit
obligation. The funding policy is to make annual trust fund contributions
equal to the net periodic pension cost up to the maximum amount deductible for
federal income taxes, but not less than the minimum contribution required by
law.
The Company's share of net pension cost of the AEP pension plan for
the years ended December 31, 1993, 1992 and 1991 was $23,000, $27,000 and
$16,000, respectively.
AEP System Savings Plan
An employee savings plan is offered to non-UMWA employees which
allows participants to contribute up to 16% of their salaries into three
investment alternatives, including AEP Co., Inc. common stock. The Company
contributes an amount equal to one-half of the first 6% of the employees'
contribution. The Company's contribution is invested in AEP Co., Inc. common
stock and totaled $14,000 in 1993 and $13,000 in both 1992 and 1991.
Postretirement Benefits Other Than Pensions
Medical benefits for its UMWA retirees who retired after January 1,
1976 and its active UMWA employees are the liability of the Company. Current
UMWA employees are eligible for medical and life insurance benefits if they
have at least 10 service years and are at least age 55 at retirement. Former
UMWA employees become eligible at age 55 if they have 20 service years. The
cost of health care benefits for UMWA retirees was expensed when paid and
totaled $224,000 in 1992 and $111,000 in 1991.
SFAS 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, was adopted in January 1993 for the Company's aggregate
postretirement benefits other than pension (OPEB) liability. SFAS 106
requires the accrual of the present value liability for OPEB costs during the
employee's service years. Prior service costs are being recognized as a
transition obligation over 20 years in accordance with SFAS 106. OPEB costs
are based on actuarially-determined stand alone costs for each System company.
The funding policy is to contribute incremental amounts recovered through coal
washing billings for non-UMWA employees and cash generated by a corporate
owned life insurance (COLI) program. The annual accrued costs for 1993
required by SFAS 106 for employees and retirees, which includes the
recognition of one-twentieth of the prior service transition obligation, was
$260,000.
To reduce the impact of adopting SFAS 106, management took several
measures. In 1990, a Voluntary Employees Beneficiary Association (VEBA) trust
fund for OPEB benefits for all non-UMWA employees was established and a $6,000
advance contribution was made to the trust fund, the maximum amount deductible
for federal income tax purposes. In 1993 an additional $32,000 contribution
was made to the VEBA trust fund through coal washing billings. In addition,
to help fund and reduce the future costs of OPEB benefits, the COLI program
was implemented. The insurance policies have a substantial cash surrender
value which is recorded, net of equally substantial policy loans, as other
regulatory assets.
<PAGE>
<PAGE>
The 1993 National Bituminous Coal Wage Agreement provides for
establishment of the UMWA 1993 Benefit Plan for future orphaned retirees not
covered by the Energy Act. The 1993 Benefit Plan will be funded by signatory
operators with a per-hour-worked contribution during the duration of the
Agreement. Health benefits under this Plan are provided only for the duration
of the Agreement. In 1993 contributions under the agreement were not
significant.
The Energy Policy Act of 1992 permits recovery, within established
limits, of excess funding in the Black Lung Trust funds of the AEP System
equal to the expense of certain benefits other than pensions for those
employees covered by certain UMWA benefit funds. Reimbursement limitations
apply to the System's excess funding, therefore funds recovered are
transferred between the funds surplus and deficit member companies. In 1993,
$75,000 of Black Lung surplus was transfered from amounts recovered by other
System companies to reimburse the Company $33,000 in accordance with <PAGE>
the Energy Act for benefits paid in 1992 and the first nine months of 1993 and
the Black Lung Trust deficit $29,000 at December 31, 1992. The Black Lung
Trust has excess funds at December 31, 1993 of $13,000 and these funds may be
applied to reimburse the Company for benefits provided in the future.
6. FEDERAL INCOME TAXES:
<TABLE>
The details of federal income taxes are as follows:
<CAPTION>
Year Ended December 31,
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Current (net). . . . . . . . . . . . . . . . . $(18) $(119) $(80)
Deferred (net) . . . . . . . . . . . . . . . . 23 133 124
Total Federal Income Taxes . . . . . . . . . $ 5 $ 14 $ 44
</TABLE>
Federal income taxes as reported are different from pre-tax book
income multiplied by the statutory tax rate predominantly due to corporate
owned life insurance and the reversal of deferred taxes recorded in prior
years at tax rates different than the current statutory tax rate.
The net deferred tax asset of $653,000 at December 31, 1993 includes
deferred tax assets of $807,000 and deferred tax liabilities of $154,000. The
significant temporary differences giving rise to the net deferred tax
liabilities are:
<TABLE>
<CAPTION>
Deferred Tax Asset
(Liability)
(in thousands)
<S> <C>
Deferred Book Gain - Sale/Leaseback of Plant. . . . . $ 662
Amounts Due From Customers For Future
Federal Income Taxes. . . . . . . . . . . . . . . . (122)
All Other (net) . . . . . . . . . . . . . . . . . . . 113
Total Net Deferred Tax Asset. . . . . . . . . . . . $ 653
/TABLE
<PAGE>
<PAGE>
7. SUPPLEMENTARY CASH FLOW INFORMATION:
Cash received for income taxes was $26,000 in 1993, $80,000 in 1992
and $59,000 in 1991. Noncash acquisitions under capital leases were $82,000
in 1993, $12,000 in 1992 and $46,000 in 1991.
8. LEASES:
Leases of property, plant and equipment are for periods up to 15
years and require payments of related property taxes, maintenance and
operating costs. The majority of the leases have purchase or renewal options
and will be renewed or replaced by other leases as long as coal washing
operations continue.
Lease rentals are primarily charged to operating expenses. The
components of rentals are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Operating Leases . . . . . . . . . . . . . . . . $3,468 $3,468 $3,468
Amortization of Capital Leases . . . . . . . . . 171 165 170
Interest on Capital Leases . . . . . . . . . . . 49 63 78
Total Rental Payments. . . . . . . . . . . . $3,688 $3,696 $3,716
<CAPTION>
Properties under capital leases and related obligations recorded on
the balance sheet are as follows:
December 31,
1993 1992
(in thousands)
<S> <C> <C>
Mining Plant. . . . . . . . . . . . . . . . . . . . . $1,280 $1,215
Accumulated Provision for Amortization. . . . . . . . 822 660
Net Properties under Capital Leases . . . . . . . $ 458 $ 555
Obligations under Capital Leases. . . . . . . . . . . $458 $555
Less Portion Due Within One Year. . . . . . . . . . . 146 162
Noncurrent Liability. . . . . . . . . . . . . . . . . $312 $393
Properties under operating leases and related obligations are not
included in the balance sheet.
The Company sold its preparation plant and began a 15-year leaseback in
1986. The gain on the sale/leaseback is being amortized (approximately
$19,700 a month) over the life of the lease and is recorded as a reduction to
operating expenses.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Future minimum lease payments consisted of the following at December 31,
1993:
Non-
Cancelable
Capital Operating
Leases Leases
(in thousands)
<S> <C> <C>
1994. . . . . . . . . . . . . . . . . . . . . . . . . $181 $ 3,468
1995. . . . . . . . . . . . . . . . . . . . . . . . . 151 3,468
1996. . . . . . . . . . . . . . . . . . . . . . . . . 91 3,468
1997. . . . . . . . . . . . . . . . . . . . . . . . . 48 3,468
1998. . . . . . . . . . . . . . . . . . . . . . . . . 34 3,468
Later Years . . . . . . . . . . . . . . . . . . . . . 31 10,404
Total Future Minimum Lease Payments . . . . . . . . . 536 $27,744
Less Estimated Interest Element . . . . . . . . . . . 78
Estimated Present Value of Future
Minimum Lease Payments. . . . . . . . . . . . . . . $458
</TABLE>
