<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1994
DUKE POWER COMPANY
422 SOUTH CHURCH STREET
CHARLOTTE, NORTH CAROLINA 28242-0001
704-594-0887
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1994 COMMISSION FILE NUMBER 1-4928
DUKE POWER COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 56-0205520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
422 SOUTH CHURCH STREET,
CHARLOTTE, N.C. 28242-0001
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code 704-594-0887
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (check mark) No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of Common Stock, without par value, outstanding at June 30,
1994..........................................................204,859,339 shares
<PAGE>
DUKE POWER COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income for the Three and Six Months Ended June 30, 1994 and 1993......................... 2
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1994 and 1993............................... 3
Consolidated Balance Sheets -- June 30, 1994 and December 31, 1993.................................................. 4-5
Consolidated Statements of Capitalization -- June 30, 1994 and December 31, 1993.................................... 6
Notes to Consolidated Financial Statements.......................................................................... 7-10
Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 11-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................................................... 12
Item 6. Exhibits and Reports on Form 8-K............................................................................ 12
SIGNATURES............................................................................................................ 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
ELECTRIC REVENUES (Notes 1 and 2)...................................... $1,031,957 $987,218 $2,087,151 $1,995,001
ELECTRIC EXPENSES
Operation
Fuel used in electric generation (Note 2)......................... 183,030 161,630 352,076 329,801
Net interchange and purchased power (Note 6)...................... 138,680 137,050 275,839 261,866
Wages, benefits and materials..................................... 208,285 170,496 373,244 333,873
Maintenance of plant facilities...................................... 99,456 93,932 196,100 185,277
Depreciation and amortization........................................ 113,847 125,291 227,695 253,118
General taxes........................................................ 59,602 54,970 120,353 112,567
Income taxes......................................................... 71,872 74,738 177,713 160,866
Total electric expenses......................................... 874,772 818,107 1,723,020 1,637,368
Electric operating income.................................... 157,185 169,111 364,131 357,633
OTHER INCOME
Allowance for equity funds used during construction.................. 5,627 4,909 11,881 8,553
Other, net........................................................... 37,055 15,697 63,946 33,890
Income taxes-other, net.............................................. (14,480) (8,120) (25,516) (13,689)
Income taxes-credit.................................................. 4,498 4,468 8,942 8,711
Total other income.............................................. 32,700 16,954 59,253 37,465
Income before interest deductions............................ 189,885 186,065 423,384 395,098
INTEREST DEDUCTIONS
Interest on long-term debt........................................... 62,357 63,771 123,371 130,658
Other interest....................................................... 2,404 2,868 4,471 5,886
Allowance for borrowed funds used during construction (credit)....... (2,878) (3,044) (6,077) (5,600)
Total interest deductions....................................... 61,883 63,595 121,765 130,944
NET INCOME............................................................. 128,002 122,470 301,619 264,154
Dividends on preferred and preference stocks......................... 12,385 13,542 24,707 26,928
EARNINGS FOR COMMON STOCK.............................................. $ 115,617 $108,928 $ 276,912 $ 237,226
COMMON STOCK DATA
Average shares outstanding (thousands)............................... 204,859 204,859 204,859 204,859
Earnings per share................................................... $ 0.56 $ 0.53 $ 1.35 $ 1.16
Dividends per share.................................................. $ 0.47 $ 0.45 $ 0.94 $ 0.90
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................................................ $ 301,619 $ 264,154
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items
Depreciation and amortization................................................................ 303,818 333,954
Deferred income taxes and investment tax credit, net of amortization......................... 64,856 396
Allowance for equity funds used during construction.......................................... (11,881) (8,553)
Purchased capacity levelization (Note 6)..................................................... (124,366) 14,533
Other, net (Note 8).......................................................................... (29,759) 153
(Increase) Decrease in
Accounts receivable....................................................................... 6,381 (18,487)
Inventory................................................................................. (14,102) 31,194
Prepayments............................................................................... 2,164 672
Increase (Decrease) in
Accounts payable.......................................................................... (66,722) (123,991)
Taxes accrued............................................................................. (23,682) (4,455)
Interest accrued and other liabilities.................................................... (12,802) 2,674
Total adjustments............................................................................ 93,905 228,090
Net cash provided by operating activities................................................. 395,524 492,244
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures......................................................................... (313,210) (240,131)
Funding for decommissioning....................................................................... (26,262) (26,262)
Investment in nuclear fuel........................................................................ (41,490) (74,903)
Investment in joint ventures (Note 8)............................................................. 1,505 (7,873)
Net change in investment securities (Note 1)...................................................... 2,292 23,806
Net cash provided by (used in) investing activities....................................... (377,165) (325,363)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
First and refunding mortgage bonds............................................................. 144,390 734,660
Pollution-control bonds........................................................................ -- 76,265
Preferred Stock................................................................................ -- 156,982
Short-term notes payable, net (Note 3)......................................................... 50,000 (100,000)
Payments for the redemption of
First and refunding mortgage bonds............................................................. -- (585,261)
Pollution-control bonds........................................................................ -- (79,310)
Preferred stock................................................................................ (1,500) (162,183)
Dividends paid................................................................................. (217,692) (209,909)
Other (Note 8)................................................................................. 535 4,756
Net cash provided by (used in) financing activities....................................... (24,267) (164,000)
Net increase (decrease) in cash................................................................... (5,908) 2,881
Cash at beginning of period....................................................................... 15,576 9,293
Cash at end of period............................................................................. $ 9,668 $ 12,174
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
<S> <C> <C>
ASSETS
Electric Plant -- at original cost
Electric plant in service.................................................................... $12,797,582 $12,573,012
Less accumulated depreciation and amortization............................................... 4,573,523 4,431,460
Electric plant in service, net............................................................ 8,224,059 8,141,552
Nuclear fuel................................................................................. 731,608 705,994
Less accumulated amortization................................................................ 425,134 405,910
Nuclear fuel, net......................................................................... 306,474 300,084
Construction work in progress (including nuclear fuel in process: 1994 -- $88,026;
1993 -- $113,904)......................................................................... 446,398 482,473
Total electric plant, net................................................................. 8,976,931 8,924,109
Other Property and Investments
Other property -- at cost (less accumulated depreciation: 1994 -- $94,473;
1993 -- $90,191).......................................................................... 362,206 311,241
Investments in joint ventures................................................................ 100,107 101,612
Other investments, at cost or less........................................................... 68,718 90,301
Nuclear decommissioning trust funds.......................................................... 146,231 118,456
Pre-funded pension cost...................................................................... 50,000 50,000
Total other property and investments...................................................... 727,262 671,610
Current Assets
Cash (Note 3)................................................................................ 9,668 15,576
Short-term investments....................................................................... 114,942 120,651
Receivables (less allowance for losses: 1994 -- $6,408; 1993 -- $6,392) (Note 1)............. 572,154 531,592
Inventory -- at average cost
Coal...................................................................................... 73,392 69,155
Other..................................................................................... 209,599 199,733
Prepayments.................................................................................. 9,898 12,062
Total current assets...................................................................... 989,653 948,769
Deferred Debits
Purchased capacity costs (Note 6 & 7)........................................................ 897,236 768,099
Debt expense, primarily refinancing costs, being amortized over terms of related debt........ 192,085 197,963
Regulatory asset related to income taxes..................................................... 485,788 486,440
Regulatory asset related to DOE assessment fee (Note 2)...................................... 110,989 116,731
Other........................................................................................ 72,756 79,386
Total deferred debits..................................................................... 1,758,854 1,648,619
Total assets................................................................................... $12,452,700 $12,193,107
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
(See Consolidated Statements of Capitalization)
Common stock equity.......................................................................... $ 4,421,358 $ 4,337,734
Preferred and preference stocks without sinking fund requirements (Note 4)................... 500,000 500,000
Preferred stocks with sinking fund requirements (Note 5)..................................... 279,500 281,000
Long-term debt............................................................................... 3,392,132 3,285,397
Total capitalization...................................................................... 8,592,990 8,404,131
Current Liabilities
Accounts payable............................................................................. 269,221 337,391
Taxes accrued................................................................................ 59,142 82,824
Interest accrued............................................................................. 71,744 68,868
Other (Note 7)............................................................................... 199,922 211,207
Total..................................................................................... 600,029 700,290
Notes payable (Note 3)....................................................................... 68,000 18,000
Current maturities of long-term debt and preferred stocks.................................... 132,238 91,898
Total current liabilities................................................................. 800,267 810,188
Accumulated Deferred Income Taxes.............................................................. 2,277,522 2,207,708
Deferred Credits and Other Liabilities
Investment tax credit........................................................................ 276,880 282,505
DOE assessment fee (Note 2).................................................................. 110,989 116,731
Nuclear decommissioning costs externally funded.............................................. 146,231 118,456
Other........................................................................................ 247,821 253,388
Total deferred credits and other liabilities.............................................. 781,921 771,080
Total capitalization and liabilities...................................................... $12,452,700 $12,193,107
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
<S> <C> <C>
Common Stock Equity
Common stock, no par, 300,000,000 shares authorized; 204,859,339 shares
outstanding for 1994 and 1993................................................................ $1,926,909 $1,926,909
Retained earnings............................................................................... 2,494,449 2,410,825
Total common stock equity.................................................................... 4,421,358 4,337,734
Preferred and Preference Stocks Without Sinking Fund Requirements (Note 4)........................ 500,000 500,000
Preferred Stocks With Sinking Fund Requirements (Note 5).......................................... 279,500 281,000
Long-Term Debt
Parent company long-term debt................................................................... 3,301,633 3,199,032
Subsidiary long-term debt....................................................................... 90,499 86,365
Total consolidated long-term debt............................................................ 3,392,132 3,285,397
Total capitalization....................................................................... $8,592,990 $8,404,131
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Revenues are recorded as service is rendered to customers. "Receivables"
on the Consolidated Balance Sheets include $183,213,000 and $175,726,000 as of
June 30, 1994 and December 31, 1993, respectively, for service that has been
rendered but not yet billed to customers.
In accordance with generally accepted accounting principles, the financial
statements include the accounts of Duke Power Company and its subsidiaries.
Intercompany accounts and transactions have been eliminated.
For purposes of the Consolidated Statements of Cash Flows, the Company's
investments in highly liquid debt instruments with an original maturity of three
months or less are included in cash flows from investing activities and thus are
not considered cash equivalents. Total income taxes paid for the quarter ended
June 30 were $115,745,000 and $152,506,000 for 1994 and 1993, respectively. For
the six months ending June 30, 1994 and 1993, income taxes paid were
$168,470,000 and $204,433,000, respectively.
The Company implemented Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes," effective January 1, 1993.
2. The North Carolina Utilities Commission (NCUC) and The Public Service
Commission of South Carolina (PSCSC) must approve rates for retail sales within
their respective states. The Federal Energy Regulatory Commission (FERC) must
approve the Company's rates for sales to wholesale customers. Sales to the other
joint owners of the Catawba Nuclear Station, which represent a substantial
majority of the Company's wholesale revenues, are set through contractual
agreements (See Note 6).
The North Carolina Supreme Court on April 22, 1992, remanded for the second
time the Company's 1986 rate order to the NCUC. In this ruling the Court held
that the record from the 1986 proceedings failed to support the rate of return
of 13.2 percent on common equity authorized by the NCUC after the initial
decision of the Court remanding the 1986 rate order. The NCUC issued a final
order dated October 26, 1992, authorizing a 12.8 percent return on common equity
for the period October 31, 1986 through November 11, 1991, that resulted in a
refund to North Carolina retail customers in 1992 of approximately $95 million,
including interest.
During 1991, the Company filed in both the North Carolina and the South
Carolina retail jurisdictions its only requests for general rate increases since
1986. The rate increase requested by the Company in North Carolina was 9.22
percent; a 4.15 percent increase was granted resulting in $100.1 million in
additional annual revenues. In South Carolina, a rate increase of 7.29 percent
was requested; a 3.0 percent increase was granted resulting in $30.2 million in
additional annual revenues. These increases were requested primarily to recover
costs associated with the Bad Creek Hydroelectric Station.
In 1991, the Company filed a request with the FERC seeking a 7.47 percent
rate increase for its wholesale customers, who represent approximately 2 percent
of the Company's total revenues. A negotiated settlement between the Company and
the wholesale customers was approved by the FERC on March 31, 1992. The approved
agreement, effective April 1, 1992, provided for a 3.3 percent rate increase,
resulting in $2.1 million in additional annual revenues.
The Company has a bulk power sales agreement with Carolina Power & Light
Company (CP&L) to provide CP&L 400 megawatts of capacity as well as associated
energy when needed for a six-year period which began July 1, 1993. Electric
rates in all regulatory jurisdictions were reduced by adjustment riders to
reflect capacity revenues received from this CP&L bulk power sales agreement.
Fuel costs are reviewed semiannually in the wholesale and South Carolina
retail jurisdictions, with provisions for changing such costs in base rates. In
the North Carolina retail jurisdiction, a review of fuel costs in rates is
required annually and during general rate case proceedings.
All jurisdictions allow the Company to adjust rates for past over-or
under-recovery of fuel costs. Therefore, the Company reflects in revenues the
difference between actual fuel costs incurred and fuel costs recovered through
rates. The North Carolina legislature ratified a bill in July 1987 assuring the
legality of such adjustments in rates. In 1991, the statute was extended through
June 30, 1997.
7
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the Department of Energy's uranium
enrichment plants. Licensees are subject to an annual assessment for 15 years
based on their pro rata share of past enrichment services. The annual assessment
is recorded as fuel expense. As of June 30, 1994, the Company has paid
$9,032,000 in 1994 and $17,370,000 cumulatively related to its ownership
interest in nuclear plants. The Company has reflected the remaining liability
and regulatory asset of $110,989,000 in the Consolidated Balance Sheets.
3. To support short-term debt obligations, the Company had credit
facilities of $324,980,000 as of June 30, 1994 and December 31, 1993 with 29
commercial banks. Included in these facilities is a three-year, $300,000,000
revolving credit agreement with the balance in separate, annually-renewable
lines of credit. These facilities are on a fee or compensating-balance basis. No
short-term debt resulting from these credit facilities was outstanding as of
June 30, 1994 and December 31, 1993.
As of June 30, 1994 and December 31, 1993, the Company had $40,000,000 in
pollution control revenue bonds backed by an unused, two-year revolving credit
facility of $40,000,000 and $130,000,000 in commercial paper backed by an
unused, three-year $130,000,000 revolving credit facility. These facilities are
on a fee basis. Both the $40,000,000 in pollution control bonds and the
$130,000,000 in commercial paper are included in long-term debt.
Cash balances maintained at the banks on deposit were $7,260,000 as of June
30, 1994, and $12,988,000 as of December 31, 1993. Cash balances and fees
compensate banks for their services, even though the Company has no formal
compensating-balance arrangements. To compensate certain banks for credit
facilities, the Company maintained balances of $49,000 as of June 30, 1994 and
December 31, 1993. The Company retains the right of withdrawal with respect to
the funds used for compensating-balance arrangements.
A summary of short-term borrowing is as follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1994 DECEMBER 31, 1993
<S> <C> <C>
Amount outstanding at end of period -- average rate of 4.40% and 3.27%
for 1994 and 1993, respectively....................................................... $ 68,000 $ 18,000
Maximum amount outstanding during the period............................................ $130,000 $ 178,000
Average amount outstanding during the period............................................ $ 25,420 $ 35,187
Weighted average interest rate for the period -- computed on a daily basis.............. 3.76% 3.17%
</TABLE>
4. At June 30, 1994, and December 31, 1993, 12,500,000 shares of Preferred
Stock, ($100 par value), 10,000,000 shares of Preferred Stock A ($25 par value)
and 1,500,000 shares of preference stock ($100 par value) were authorized with
or without sinking fund requirements. Preferred and Preference Stocks without
sinking fund requirements at June 30, 1994 and December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
YEAR SHARES JUNE 30 DECEMBER 31
RATE/SERIES ISSUED OUTSTANDING 1994 1993
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
4.50% C....................................................................... 1964 350,000 $ 35,000 $ 35,000
5.72% D....................................................................... 1966 350,000 35,000 35,000
6.72% E....................................................................... 1968 350,000 35,000 35,000
7.85% S....................................................................... 1992 600,000 60,000 60,000
7.00% W....................................................................... 1993 500,000 50,000 50,000
7.04% Y....................................................................... 1993 600,000 60,000 60,000
7.72% (Preferred Stock A)..................................................... 1992 1,600,000 40,000 40,000
6.375% (Preferred Stock A).................................................... 1993 2,400,000 60,000 60,000
Adjustable Rate A............................................................. 1986 500,000 50,000 50,000
Auction Series A.............................................................. 1990 750,000 75,000 75,000
Total....................................................................... $500,000 $ 500,000
</TABLE>
8
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. At June 30, 1994 and December 31, 1993, 12,500,000 shares of Preferred
Stock, ($100 par value), 10,000,000 shares of Preferred Stock A ($25 par value)
and 1,500,000 shares of Preference Stock ($100 par value) were authorized with
or without sinking fund requirements. Preferred and Preference Stocks with
sinking fund requirements at June 30, 1994 and December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
YEAR SHARES JUNE 30 DECEMBER 31
RATE/SERIES ISSUED OUTSTANDING 1994 1993
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
5.95% B (Preferred Stock A)................................................... 1992 800,000 $ 20,000 $ 20,000
6.10% C (Preferred Stock A)................................................... 1992 800,000 20,000 20,000
6.20% D (Preferred Stock A)................................................... 1992 800,000 20,000 20,000
7.12% Q....................................................................... 1987 470,000 47,000 --
7.12% Q....................................................................... 1987 485,000 -- 48,500
7.50% R....................................................................... 1992 850,000 85,000 85,000
6.20% T....................................................................... 1992 130,000 13,000 13,000
6.30% U....................................................................... 1992 130,000 13,000 13,000
6.40% V....................................................................... 1992 130,000 13,000 13,000
6.75% X....................................................................... 1993 500,000 50,000 50,000
Less: Current sinking fund requirements 7.12% Q............................... (1,500) (1,500)
Total......................................................................... $279,500 $ 281,000
</TABLE>
6. The Company has sold interests in both units of the Catawba Nuclear
Station to the North Carolina Municipal Power Agency Number 1 (NCMPA), the North
Carolina Electric Membership Corporation (NCEMC), the Piedmont Municipal Power
Agency (PMPA), and the Saluda River Electric Cooperative, Inc. (Saluda River),
collectively referred to as the Other Catawba Joint Owners. The Company retains
a 12.5 percent ownership interest in the Catawba Nuclear Station. In connection
with the joint ownership, the Company has entered into contractual agreements
with the Other Catawba Joint Owners to purchase declining percentages of the
generating capacity and energy from the plant. These agreements were effective
beginning with the commercial operation of each unit. Unit 1 and Unit 2 began
commercial operation in June 1985 and in August 1986, respectively. Such
agreements were established for 15 years for NCMPA and PMPA and 10 years for
NCEMC and Saluda River.
Effective in its November 1991 rate order, the North Carolina Utilities
Commission (NCUC) reaffirmed the Company's recovery, on a levelized basis, of
the capital costs and fixed operating and maintenance costs of capacity
purchased from the Other Catawba Joint Owners. The NCUC rate order changed the
levelized basis to a 15-year period ending 2001 for all of the Other Catawba
Joint Owners compared to the previous 15-year levelization period for NCMPA and
PMPA and 10-year levelization period for NCEMC and Saluda River. The Public
Service Commission of South Carolina (PSCSC), in its November 1991 rate order,
reaffirmed the Company's recovery on a levelized basis of the capital costs of
capacity purchased from the Other Catawba Joint Owners. The PSCSC rate order
retained the levelized basis of a 7 1/2-year period for PMPA and NCMPA; for
NCEMC and Saluda River the new levelized basis reflects the projected purchased
capacity payments for the twelve-month period ended October 1992. The Federal
Energy Regulatory Commission granted the Company recovery on a levelized basis
of the capital costs and fixed operating and maintenance costs of capacity
purchased from the Other Catawba Joint Owners over their contractual purchased
power buyback periods. As currently provided in rates in all jurisdictions, the
Company recovers the costs of purchased energy and a portion of purchased
capacity. The portion of costs not currently recovered through rates is being
accumulated, and the Company is recording a carrying charge on the accumulated
balance. The Company recovers the accumulated balance including the carrying
charge when the capacity payments drop below the levelized revenues. In the
North Carolina and wholesale jurisdictions, purchased capacity payments continue
to exceed levelized revenues. In the South Carolina jurisdiction, cumulative
levelized revenues have exceeded purchased capacity payments. Jurisdictional
levelizations are intended to recover total costs, including allowed returns,
and are subject to adjustments, including final true-ups.
9
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
For the six months ended June 30, 1994 and 1993, the Company recorded
purchased capacity and energy costs from the Other Catawba Joint Owners of
$344,736,000 and $191,774,000, respectively. These amounts, adjusted for the
cost of capacity purchased not reflected in current rates, are included in "Net
interchange and purchased power" in the Consolidated Statements of Income. As of
June 30, 1994 and December 31, 1993, $897,236,000 and $768,099,000 pre-tax,
respectively, associated with the costs of capacity purchased, but not reflected
in current rates had been accumulated in the Consolidated Balance Sheets as
"Purchased capacity costs." Accumulated deferred income taxes associated with
"Purchased capacity costs" were $303,915,000 and $254,789,000 as of June 30,
1994 and December 31, 1993, respectively.
7. The Other Catawba Joint Owners and the Company have been involved in
various proceedings related to the Catawba joint ownership contractual
agreements. The basic contention in each proceeding is that certain calculations
affecting bills under these agreements should be performed differently. These
items are covered by the agreements between the Company and the Other Catawba
Joint Owners which have been previously approved by the Company's retail
regulatory commissions. (See Note 6.)
The Company and two of the four joint owners entered into a settlement
agreement during 1993 which resolved all issues in contention in such
proceedings between the Company and these owners. Such settlement agreement was
approved by the Company's retail regulatory commissions. The Company recorded a
liability as an increase to Other current liabilities on its Consolidated
Balance Sheets of approximately $105 million in December 1993 to reflect this
settlement. The liability was subsequently paid in May 1994. As the Company
expects the costs associated with this settlement will be recovered as part of
the purchased capacity levelization, the Company has included approximately $105
million as an increase to Purchased capacity costs on its Consolidated Balance
Sheets. Therefore, the Company believes the ultimate resolution of these matters
should not have a material adverse effect on the results of operations or
financial position of the Company.
The Company and the two remaining joint owners, who are not parties to the
above settlement, reached a similar settlement agreement in April 1994 which, if
approved by the regulators, will resolve all disputes among these parties in the
presently outstanding proceedings. The Company recorded a liability as an
increase to Other current liabilities on its Consolidated Balance Sheets of
approximately $109 million in the second quarter of 1994 to reflect this
settlement. As the Company expects the costs associated with this settlement
will be recovered as part of the purchased capacity levelization, the Company
has included approximately $109 million as an increase to Purchased capacity
costs on its Consolidated Balance Sheets. Absent final regulatory approval,
further proceedings will be required to determine the amounts associated with an
October 1993 arbitrator's decision as it relates to these owners, some of which
may involve refunds. However, the Company expects the costs associated with this
settlement or decision will be included in and recovered as part of the
purchased capacity levelization consistent with prior orders of the retail
regulatory commissions. Therefore, the Company believes the ultimate resolution
of these matters should not have a material adverse effect on the results of
operations or financial position of the Company.
The Company is also involved in legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding matters arising in the ordinary course of business, some of which
involve substantial amounts. Management is of the opinion that the final
disposition of these proceedings will not have a material adverse effect on the
results of operations or the financial position of the Company.
8. In the Consolidated Statements of Cash Flows certain prior year
information has been reclassified to conform with current classifications.
9. These are quarterly financial statements and the amounts reported in the
Consolidated Statements of Income for the periods herein are not necessarily
indicative of amounts expected for the respective years. These amounts may be
affected by factors such as the temperature variations between seasons of the
year, timing of scheduled and unscheduled maintenance of certain electric
generating units, and the Company's policy of accruing estimates for certain
other expenses ratably over twelve months until final amounts are determined.
10. In the opinion of the Company, the accompanying financial statements
contain all adjustments necessary to present fairly the financial position of
Duke Power Company as of the respective dates shown and the results of its
operations for the respective periods then ended.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the period January 1, 1994 through June 30, 1994, additions to
utility property (including nuclear fuel) of $320.2 million and retirements of
$107.1 million resulted in a net increase in gross plant of $213.1 million.
The Company began construction of the Lincoln Combustion Turbine Station
(Lincoln Station) in March 1993. The Lincoln Station will help the Company meet
capacity needs during times of peak demand for electricity. Current plans call
for 10 units to begin commercial operation in 1995, with the remaining 6 units
to come on line the following year. The estimated total cost of the project is
approximately $500 million.
The Company normally experiences seasonal peak loads in the summer and
winter which are relatively in balance. On July 29, 1993, the Company
experienced its summer peak load of 15,720 MW during unusually hot weather. A
new all-time peak load of 16,070 MW occurred on January 19, 1994 during
extremely cold weather. The Company's peak load includes the load of the Other
Catawba Joint Owners.
Fixed charges coverage for the twelve months ended June 30, 1994, using the
SEC method, was 5.03 times. Internal cash generation for the twelve months ended
June 30, 1994 was 55 percent. Exclusive of refinancing activities, 87% of the
Company's capital needs were met by cash generated from normal operations.
The Company is involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Management is of the opinion that the final disposition of
these proceedings will not have a material adverse effect on the results of
operations or the financial position of the Company.
The Other Catawba Joint Owners and the Company have been involved in
various proceedings related to the Catawba joint ownership contractual
agreements. The basic contention in each proceeding is that certain calculations
affecting bills under these agreements should be performed differently. These
items are covered by the agreements between the Company and the Other Catawba
Joint Owners which have been previously approved by the Company's retail
regulatory commissions. (See Note 6, "Notes to Consolidated Financial
Statements").
The Company and two of the four joint owners entered into a settlement
agreement during 1993 which resolved all issues in contention in such
proceedings between the Company and these owners. Such settlement agreement was
approved by the Company's retail regulatory commissions. The Company recorded a
liability as an increase to Other current liabilities on its Consolidated
Balance Sheets of approximately $105 million in December 1993 to reflect this
settlement. The liability was subsequently paid in May 1994. As the Company
expects the costs associated with this settlement will be recovered as part of
the purchased capacity levelization, the Company has included approximately $105
million as an increase to Purchased capacity costs on its Consolidated Balance
Sheets. Therefore, the Company believes the ultimate resolution of these matters
should not have a material adverse effect on the results of operations or
financial position of the Company.
The Company and the two remaining joint owners, who are not parties to the
above settlement, reached a similar settlement agreement in April 1994 which, if
approved by the regulators, will resolve all disputes among these parties in the
presently outstanding proceedings. The Company recorded a liability as an
increase to Other current liabilities on its Consolidated Balance Sheets of
approximately $109 million in the second quarter of 1994 to reflect this
settlement. As the Company expects the costs associated with this settlement
will be recovered as part of the purchased capacity levelization, the Company
has included approximately $109 million as an increase to Purchased capacity
costs on its Consolidated Balance Sheets. Absent final regulatory approval,
further proceedings will be required to determine the amounts associated with an
October 1993 arbitrator's decision as it relates to these owners, some of which
may involve refunds. However, the Company expects the costs associated with this
settlement or decision will be included in and recovered as part of the
purchased capacity levelization consistent with prior orders of the retail
regulatory commissions. Therefore, the Company believes the ultimate resolution
of these matters should not have a material adverse effect on the results of
operations or financial position of the Company.
RESULTS OF OPERATIONS
Earnings per share for the second quarter and year-to-date June 1994 were
$0.56 and $1.35, respectively, up 5.7% and 16.4% compared to the same periods in
1993.
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Revenues for second quarter and year-to-date June 1994 were up $44.7
million and $92.2 million, respectively, compared to the same periods in 1993.
Total electric kilowatt-hour sales for second quarter 1994 increased by 4.2%
over second quarter 1993. General service sales were up 2.3%. Total industrial
sales for the quarter were up 2.9%, with textile sales up 2.0%. Wholesale and
Other sales increased 13.4% compared to 1993 due primarily to off-system sales.
For year-to-date 1994, electric kilowatt-hour sales increased by 5.0% over 1993.
This increase included a 2.6% increase in residential and a 4.3% increase in
general service sales. Industrial sales for year-to-date 1994 increased 3.9%
over 1993 with textile sales up 2.6%. Although the weather during the first
quarter 1994 contributed to the year-to-date increase, the primary factor for
both second quarter and year-to-date was the economic strength of the service
territory.
Fuel expense and net interchange and purchased power expense for the second
quarter 1994 increased $23.0 million compared to second quarter 1993. Growth in
sales, in part met by higher levels of fossil generation as a percentage of
total generation, contributed to the increase. For year-to-date 1994, fuel
expense and net interchange and purchased power expense increased $36.2 million
over 1993. The year-to-date increase was due to growth in sales, in part met by
higher levels of fossil generation as a percentage of total generation,
partially offset by a reduction in the price of fuel.
Operating and maintenance expenses increased $43.3 million for the second
quarter 1994 over the same period in 1993. This 16.4% increase was primarily due
to a one-time charge associated with the cost of the Enhanced Voluntary
Separation (EVS) program announced March 15. Employees electing to terminate
under this program had to make their decisions between March 31 and June 30 and
must terminate by August 31, 1994. Approximately 1200 employees, or 7% of the
Company's workforce, accepted the EVS option. Total cost of the program was $48
million and was primarily recorded as an operating expense in the second
quarter. As of June 30, 1994, the Company had paid $17 million to 431 terminated
employees. Total operating and maintenance expenses for year-to-date 1994
increased $50.2 million due to the EVS costs as well as higher fossil
maintenance expenses resulting from increased turbine and boiler work at fossil
stations. This increase was partially offset by a reduction in nuclear
maintenance costs related to refueling outages.
Depreciation and amortization expenses decreased for the second quarter and
year-to-date 1994 compared to second quarter and year-to-date 1993. This
decrease was primarily due to the lower amortization of property losses in 1994,
which was partially offset by an increase in investment in distribution
property.
Other, net on the Income Statement increased $21.4 million and $30.1
million for the second quarter and year-to-date 1994, respectively, compared to
the same periods in 1993. This increase was primarily due to a one-time gain
related to the sale of an investment in preferred stock by a subsidiary.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on April 28, 1994, the
shareholders of the Company elected G. Alex Bernhardt, Crandall C. Bowles,
Robert J. Brown, George Dean Johnson, Jr., James G. Martin and Richard B. Priory
as Class III directors to serve until the Annual Meeting of Shareholders to be
held in 1997, or until their successors are elected and qualified. The
shareholders also voted to ratify the selection of Deloitte & Touche to act as
independent auditors to make an examination of the Company's accounts for the
year 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
The Company filed no 8-K reports during the second quarter of 1994.
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SIGNATURES
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.
DUKE POWER COMPANY
Date: August 11, 1994
R. J. OSBORNE
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Date: August 11, 1994
JEFFREY L. BOYER
CONTROLLER
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