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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, 1994
Commission File Number 1-267
Allegheny Power System, Inc.
(Exact name of registrant as specified in its charter)
Maryland 13-5531602
(State of Incorporation) (I.R.S. Employer Identification No.)
12 East 49th Street, New York, New York 10017-1028
Telephone Number - 212-752-2121
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
At May 12, 1994, 118,037,427 shares of the Common Stock ($1.25
par value) of the registrant were outstanding.
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ALLEGHENY POWER SYSTEM, INC.
Form 10-Q for Quarter Ended March 31, 1994
Page
Index No.
PART I--FINANCIAL INFORMATION
Consolidated statement of income -
Three months ended March 31, 1994 and 1993 3
Consolidated balance sheet - March 31, 1994
and December 31, 1993 4
Consolidated statement of cash flows -
Three months ended March 31, 1994 and 1993 5
Notes to consolidated financial statements 6
Management's discussion and analysis of financial
condition and results of operations 7-10
PART II--OTHER INFORMATION 11
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<TABLE>
<CAPTION>
ALLEGHENY POWER SYSTEM, INC.
Consolidated Statement of Income
Three Months Ended
March 31
1994 1993
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C>
Residential $274 465 $233 494
Commercial 120 258 106 348
Industrial 179 613 163 083
Nonaffiliated utilities 111 612 91 328
Other 18 384 20 425
Total Operating Revenues 704 332 614 678
OPERATING EXPENSES:
Operation:
Fuel 155 720 152 853
Purchased power and exchanges, net 136 487 97 226
Deferred power costs, net 5 182 (1 625)
Other 68 961 62 975
Maintenance 63 902 56 811
Depreciation 55 872 51 601
Taxes other than income taxes 49 996 46 824
Federal and state income taxes 50 055 40 489
Total Operating Expenses 586 175 507 154
Operating Income 118 157 107 524
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 2 865 3 254
Other income, net (299) (30)
Total Other Income and Deductions 2 566 3 224
Income Before Interest Charges and
Preferred Dividends 120 723 110 748
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 36 923 40 174
Other interest 2 448 1 069
Allowance for borrowed funds used
during construction (1 784) (2 381)
Dividends on preferred stock of subsidiaries 4 232 4 277
Total Interest Charges and
Preferred Dividends 41 819 43 139
CONSOLIDATED NET INCOME $ 78 904 $ 67 609
COMMON STOCK SHARES OUTSTANDING (average) 117 667 736 113 902 668
EARNINGS PER AVERAGE SHARE $.67 $.59
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ALLEGHENY POWER SYSTEM, INC.
Consolidated Balance Sheet
March 31, December 31,
1994 1993
(Thousands of Dollars)
ASSETS:
Property, Plant, and Equipment:
At original cost, including $659,626,000
<S> <C> <C>
and $638,920,000 under construction $7 238 334 $7 176 847
Accumulated depreciation (2 422 280) (2 388 758)
4 816 054 4 788 089
Investments and Other Assets:
Subsidiaries consolidated--excess of cost
over book equity at acquisition 15 077 15 077
Securities of associated company--at cost,
which approximates equity 1 250 1 250
Other 24 431 24 357
40 758 40 684
Current Assets:
Cash and temporary cash investments 4 269 2 417
Accounts receivable:
Electric service, net of $4,345,000 and $3,418,000
uncollectible allowance 224 405 188 139
Other 9 587 7 736
Materials and supplies--at average cost:
Operating and construction 90 997 86 766
Fuel 68 935 71 392
Deferred power costs 9 449 14 054
Prepaid taxes 55 176 43 139
Other 16 433 10 391
479 251 424 034
Deferred Charges:
Regulatory assets 582 158 577 817
Unamortized loss on reacquired debt 43 660 44 435
Other 84 914 74 109
710 732 696 361
Total Assets $6 046 795 $5 949 168
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 147 547 $ 147 079
Other paid-in capital 939 424 931 063
Retained earnings 908 334 877 673
1 995 305 1 955 815
Preferred stock:
Not subject to mandatory redemption 250 086 250 086
Subject to mandatory redemption 26 400 26 400
Long-term debt 2 035 685 2 008 104
4 307 476 4 240 405
Current Liabilities:
Short-term debt 122 504 130 636
Long-term debt and preferred stock
due within one year 11 200 27 200
Accounts payable 177 562 187 690
Taxes accrued:
Federal and state income 63 969 14 689
Other 42 221 57 758
Interest accrued 36 685 38 626
Other 89 529 73 467
543 670 530 066
Deferred Credits and Other Liabilities:
Unamortized investment credit 164 247 166 328
Deferred income taxes 887 833 873 695
Regulatory liabilities 107 475 107 372
Other 36 094 31 302
1 195 649 1 178 697
Total Capitalization and Liabilities $6 046 795 $5 949 168
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ALLEGHENY POWER SYSTEM, INC.
Consolidated Statement of Cash Flows
Three Months Ended
March 31
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Consolidated net income $ 78 904 $ 67 609
Depreciation 55 872 51 601
Deferred investment credit and income taxes, net (4 161) 377
Deferred power costs, net 5 182 (1 625)
Allowance for other than borrowed funds used
during construction (2 865) (3 254)
Changes in certain current assets and
liabilities:
Accounts receivable, net (38 117) (29 007)
Materials and supplies (1 774) (3 231)
Accounts payable (10 128) (33 970)
Taxes accrued 33 743 19 786
Interest accrued (1 941) 1 240
Other, net 6 592 8 220
121 307 77 746
CASH FLOWS FROM INVESTING:
Construction expenditures (86 084) (100 014)
Allowance for other than borrowed funds used
during construction 2 865 3 254
(83 219) (96 760)
CASH FLOWS FROM FINANCING:
Sale of common stock 8 829 8 785
Issuance of long-term debt 27 309 232 333
Retirement of long-term debt (16 000) (18 455)
Deposit with trustees for redemption
of long-term debt - (184 646)
Short-term debt, net (8 132) 14 195
Cash dividends on common stock (48 242) (46 129)
(36 236) 6 083
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 1 852 (12 931)
Cash and Temporary Cash Investments at January 1 2 417 17 032
Cash and Temporary Cash Investments at March 31 $ 4 269 $ 4 101
Supplemental cash flow information:
Cash paid during the quarter for:
Interest (net of amount capitalized) $ 38 240 $ 36 535
Income taxes - 5 128
</TABLE>
See accompanying notes to consolidated financial statements.
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ALLEGHENY POWER SYSTEM, INC.
Notes to Consolidated Financial Statements
1. The Company's Notes to Consolidated Financial Statements in the
Allegheny Power System companies' combined Annual Report on
Form 10-K for the year ended December 31, 1993, should be read
with the accompanying financial statements and the following
notes. With the exception of the December 31, 1993
consolidated balance sheet which was in the aforementioned
annual report on Form 10-K, the accompanying consolidated
financial statements appearing on pages 3 through 5 and these
notes to consolidated financial statements are unaudited. In
the opinion of the Company, such consolidated financial
statements together with these notes thereto contain all
adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the Company's
financial position as of March 31, 1994, and the results of
operations and cash flows for the three months ended March 31,
1994 and 1993.
2. The Consolidated Statement of Income reflects the results of
past operations and is not intended as any representation as to
future results. For purposes of the Consolidated Balance Sheet
and Consolidated Statement of Cash Flows, temporary cash
investments with original maturities of three months or less,
generally in the form of commercial paper, certificates of
deposit, and repurchase agreements, are considered to be the
equivalent of cash.
3. On March 1, 1994, The Potomac Edison Company retired at
maturity $16 million of 4-5/8% first mortgage bonds.
4. Other paid-in capital increased $8,386,000 in the three months
ended March 31, 1994, representing the excess of amounts
received over par value, less related expenses, from the
issuance of 373,845 shares of common stock pursuant to the
Company's Dividend Reinvestment and Stock Purchase Plan and
Employee Stock Ownership and Savings Plan. Additionally, other
paid-in capital decreased $25,000 for expenses related to the
October 1993 public sale of shares of common stock.
5. Common stock dividends per share declared during the periods
for which income statements are included are as follows:
Three Months Ended
March 31
1994 1993
Number of Shares. . . . . . . . . . . . . . 117,663,582 113,898,736
Amount per Share. . . . . . . . . . . . . . $.41 $.405
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ALLEGHENY POWER SYSTEM, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF FIRST QUARTER OF 1994 WITH FIRST QUARTER OF 1993
CONSOLIDATED NET INCOME
Consolidated net income for the first quarter of 1994
was $78.9 million or $.67 per average share, compared with $67.6 million
or $.59 per average share for the corresponding 1993 period.
The increase in consolidated net income for the first
quarter of 1994 resulted from greater kilowatthour (kWh) sales to retail
customers and previously reported rate increases, primarily in Maryland
and Pennsylvania effective in February and May 1993, respectively, offset
in part by increased maintenance, depreciation, and other expenses.
Retail sales in the first quarter of 1994 were favorably affected by
record-setting cold temperatures in January 1994.
SALES AND REVENUES
Retail kWh sales to residential, commercial, and
industrial customers increased 9%, 6%, and 3%, respectively. The increase
in kWh sales to residential and commercial customers was primarily due to
an increase in weather-related sales. In mid-January 1994, the coldest
temperatures ever recorded in much of the System service territory
resulted in heating degree days which were 45% over the prior January and
16% above normal. The increase in kWh sales to industrial customers
occurred in almost all industrial groups. The increase in revenues from
retail customers resulted from the following:
Change from Prior Period
(Millions of Dollars)
Increased kWh sales $20.8
Fuel and energy cost adjustment
clauses (1) 28.2
Rate increases (2):
Pennsylvania 13.6
Maryland 2.9
West Virginia 2.0
Virginia 1.4
19.9
Other 2.5
$71.4
(1) Changes in revenues from fuel and energy cost adjustment
clauses have little effect on consolidated net income.
(2) Reflects rate increases on an annual basis of about $11.3
million in Maryland effective February 25, 1993, a $61.6
million increase in base rates in Pennsylvania effective
May 18, 1993, a surcharge of $3.9 million in West Virginia
effective July 1, 1992, which was increased to $10.9 million
effective July 1, 1993, for recovery of carrying charges on
costs to comply with the Clean Air Act Amendments of 1990
(CAAA), and a $10.0 million base rate increase in Virginia
effective September 28, 1993.
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KWh sales to and revenues from nonaffiliated utilities
are comprised of the following items:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1994 1993
KWh sales (in billions):
<S> <C> <C>
From subsidiaries' generation .4 .6
From purchased power 3.3 2.9
3.7 3.5
Revenues (in millions):
From subsidiaries' generation $ 10.4 $14.1
From sales of purchased power 101.2 77.2
$111.6 $91.3
</TABLE>
Sales from subsidiaries' generation decreased because
of growth of kWh sales to retail customers and generating unit outages,
both of which reduces the amount available for sale, and continuing price
competition. Increased sales from purchased power were due to increased
demand resulting primarily from reduced availability of eastern utilities'
generation equipment. About 95% of the aggregate benefits from sales to
nonaffiliated utilities is passed on to retail customers and has little
effect on consolidated net income.
OPERATING EXPENSES
Fuel expenses increased 2%, primarily the net result of
a 3% increase in average coal prices and a 2% decrease in kWh generated.
Fuel expenses are primarily subject to deferred power cost accounting
procedures with the result that changes in fuel expenses have little
effect on consolidated net income.
"Purchased power and exchanges, net" represents power
purchases from and exchanges with other utilities and purchases from
qualified facilities under the Public Utility Regulatory Policies Act of
1978 (PURPA), and is comprised of the following items:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1994 1993
(Millions of Dollars)
Purchased power:
<S> <C> <C>
For resale to other utilities $ 89.7 $70.2
From PURPA generation 30.2 24.5
Other 13.3 2.6
Total power purchased 133.2 97.3
Power exchanges, net 3.3 (.1)
$136.5 $97.2
</TABLE>
The amount of power purchased from other utilities for
use by subsidiaries and for resale to other utilities depends upon the
availability of subsidiaries' generating equipment, transmission capacity,
and fuel, and their cost of generation and the cost of operations of other
utilities from which such purchases are made. The cost of power purchased
for use by the subsidiaries, including power from PURPA generation, is
mostly recovered from customers currently through the regular fuel and
energy cost recovery procedures followed by the subsidiaries' regulatory
commissions and is primarily subject to deferred power cost procedures
with the result that changes in such costs have little
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effect on consolidated net income. As described under SALES AND REVENUES
above, the increase in sales to retail customers combined with generating
unit outages resulted in increased purchases from other utilities. The
primary reason for the fluctuation in purchases for resale to other
utilities is also described under SALES AND REVENUES above.
The increase in other operation expense resulted
primarily from provisions for claims related to previously reported
asbestos suits and a superfund site cleanup, the timing of expenditures
for increased participation in research and development activities of the
Electric Power Research Institute, and increased provisions for
uncollectible accounts.
Maintenance expenses represent costs incurred to
maintain the power stations, the transmission and distribution (T&D)
system, and general plant, and reflect routine maintenance of equipment
and rights-of-way as well as planned major repairs and unplanned
expenditures, primarily from forced outages at the power stations and
periodic storm damage on the T&D system. In early January 1994,
Monongahela Power Company experienced the worst storm in that company's
history with nearly $7 million of damage to its facilities. These
expenses were deferred pending rate recovery which has been requested in a
rate case filing made on January 18, 1994. The subsidiaries are
experiencing, and expect to continue to experience, increased expenditures
due to the aging of their power stations. Variations in maintenance
expense result primarily from unplanned events and planned major projects,
which vary in timing and magnitude depending upon the length of time
equipment has been in service without a major overhaul, the amount of work
found necessary when equipment is dismantled, and outage requirements to
comply with the CAAA.
The increase in depreciation expense resulted primarily
from additions to electric plant. Because of the increased levels of
capital expenditures expected as a result of the CAAA and the replacement
of aging equipment at the subsidiaries' power stations, depreciation
expense is expected to increase significantly over the next few years.
Taxes other than income taxes increased $3.2 million
primarily from increases in gross receipts taxes resulting from higher
revenues from retail customers. The net increase of $9.6 million in
federal and state income taxes resulted primarily from an increase in
income before taxes and an increase in the federal income tax rate
pursuant to the Revenue Reconciliation Act of 1993 enacted in August 1993.
The combined decrease of $1.0 million in allowance for
funds used during construction (AFUDC) reflects an increase in the current
recovery of carrying charges on CAAA expenditures in lieu of recording
AFUDC.
Interest on long-term debt decreased $3.3 million due
primarily to interest savings from debt refinancings in 1993.
Fluctuations in other interest expense as well as other income, net,
reflect changes in the levels of temporary investments and short-term debt
maintained by the companies.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's discussion on Liquidity and Capital
Resources in the Allegheny Power System companies' combined Annual Report
on Form 10-K for the year ended December 31, 1993 should be read with the
following information.
Monongahela Power Company, on January 18, 1994, and The
Potomac Edison Company, on January 14, 1994, filed applications with the
Public Service Commission of West Virginia for base rate increases
designed to produce $61.3 million and $12.2 million, respectively, in
additional annual revenues. On March 31, 1994, West Penn Power Company
filed with the Pennsylvania Public Utility Commission for an increase in
base rates of about $80 million in additional revenues on an annual basis.
On April 15, 1994, The Potomac Edison Company filed with the Maryland
Public Service Commission for a rate increase designed to produce $31
million in additional annual revenues from its Maryland customers. These
increases, along with additional rate increase requests to be filed in
Virginia, Ohio, and at the Federal Energy Regulatory Commission for
wholesale customers, include recovery of the remaining carrying charges on
investment, depreciation, and all operating costs required to comply with
Phase I of the CAAA, and other increasing levels of expenses. It is
expected that the subsidiaries will begin to receive additional revenues
from these rate cases on or about the time they begin to incur additional
depreciation and operating costs for the scrubbers to be placed in service
on or before January 1, 1995.
On May 11, 1994, Monongahela Power Company issued
500,000 shares of $7.73 preferred stock with a par value of $100 per
share.
In the normal course of business, the subsidiaries are
subject to various contingencies and uncertainties relating to their
operations and construction programs, including cost recovery in the
regulatory process, laws, regulations and uncertainties related to
environmental matters, and legal actions.
As previously reported, the subsidiaries are currently
named as defendants along with multiple other defendants in 2,056 pending
asbestos cases involving multiple plaintiffs. While the cumulative number
of claims appears to be significant, previous cases have been settled for
an amount substantially less than the anticipated cost of defense, and it
is believed that more than half of the cases relate solely to other
defendants. The subsidiaries believe that the remaining cases involving
them are without merit and that provisions for liabilities are such that
these suits will not have a material effect on their financial position.
As also previously reported, the subsidiaries and
approximately 875 others have been identified by the Environmental
Protection Agency as potentially responsible parties in a superfund site
subject to cleanup. The subsidiaries believe that provisions for
liabilities are such that costs incurred in connection with remediation
efforts will not have a material effect on their financial position.
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ALLEGHENY POWER SYSTEM, INC.
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 1994
ITEM 5. OTHER INFORMATION
On May 5, 1994, the Senior Hearing Examiner in The
Potomac Edison Company's 1993 Virginia base rate filing issued a report
recommending an increase in annual revenues of $4.5 million based on a
return on equity of 11.25%.
On May 4, 1994, the Pennsylvania Public Utility
Commission approved West Penn Power Company's request to accrue post in-
service carrying charges on the Harrison scrubbers and to defer related
depreciation and operating and maintenance expenses until they are
recognized in rates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed on behalf of the
Company for the quarter ended March 31, 1994.
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.
ALLEGHENY POWER SYSTEM, INC.
K. M. JONES
K. M. Jones, Vice President
(Chief Accounting Officer)
May 12, 1994
