<PAGE>
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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 September 30, 1996
Commission File Number 1-5164
MONONGAHELA POWER COMPANY
(Exact name of registrant as specified in its charter)
Ohio 13-5229392
(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Fairmont Avenue, Fairmont, West Virginia 26554
Telephone Number - 304-366-3000
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months and (2) has been subject to such filing requirements for the past
90 days.
At November 12, 1996, 5,891,000 shares of the Common Stock ($50 par
value) of the registrant were outstanding, all of which are held by Allegheny
Power System, Inc., the Company's parent.
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MONONGAHELA POWER COMPANY
Form 10-Q for Quarter Ended September 30, 1996
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of income - Three and nine months ended
September 30, 1996 and 1995 3
Balance sheet - September 30, 1996
and December 31, 1995 4
Statement of cash flows - Nine months ended
September 30, 1996 and 1995 5
Notes to financial statements 6-8
Management's discussion and analysis of financial
condition and results of operations 9-13
PART II--OTHER INFORMATION 13
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<TABLE>
<CAPTION>
MONONGAHELA POWER COMPANY
Statement of Income
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C> <C> <C>
Residential $ 48,253 $ 54,793 $ 155,866 $ 156,398
Commercial 31,431 32,957 91,737 93,777
Industrial 47,811 51,101 152,013 159,032
Wholesale and other, including affiliates* 20,655 23,228 66,893 64,104
Bulk power transactions, net* 4,017 3,695 13,401 10,441
Total Operating Revenues 152,167 165,774 479,910 483,752
OPERATING EXPENSES:
Operation:
Fuel 33,073 38,431 105,268 103,383
Purchased power and exchanges* 23,616 20,696 74,692 73,817
Deferred power costs, net (2,729) 4,332 1,108 14,597
Other** 21,485 23,161 72,770 61,401
Maintenance 18,464 18,413 56,465 54,972
Depreciation 13,881 14,242 41,589 43,680
Taxes other than income taxes 10,324 10,219 30,795 28,641
Federal and state income taxes 9,625 12,119 27,160 32,376
Total Operating Expenses 127,739 141,613 409,847 412,867
Operating Income 24,428 24,161 70,063 70,885
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 97 157 185 319
Other income, net 1,808 2,435 5,118 7,328
Total Other Income and Deductions 1,905 2,592 5,303 7,647
Income Before Interest Charges 26,333 26,753 75,366 78,532
INTEREST CHARGES:
Interest on long-term debt 9,122 9,379 27,533 27,875
Other interest 405 629 1,427 2,000
Allowance for borrowed funds used during
construction (111) (234) (212) (678)
Total Interest Charges 9,416 9,774 28,748 29,197
NET INCOME $ 16,917 $ 16,979 $ 46,618 $ 49,335
</TABLE>
* Prior period amounts have been reclassified for comparative purposes to
reflect a change in 1996 in reporting certain bulk power transmission
transactions with nonaffiliated utilities. See Note 3 on page 6.
**Includes restructuring charges of $2.0 million and $15.9 million for the
three and nine-month periods ended September 30, 1996, respectively.
Includes restructuring charges of $3.4 million for the three and
nine-month periods ended September 30, 1995.
See Note 4 on pages 6 and 7 for additional information on the
restructuring charges.
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
MONONGAHELA POWER COMPANY
Balance Sheet
September 30, December 31,
1996 1995
ASSETS: (Thousands of Dollars)
<S> <C> <C>
Property, Plant, and Equipment:
At original cost, including $26,345,000
and $29,443,000 under construction $ 1,853,846 $ 1,821,613
Accumulated depreciation (782,000) (747,013)
1,071,846 1,074,600
Investments:
Allegheny Generating Company - common stock at equity 56,727 57,821
Other 365 422
57,092 58,243
Current Assets:
Cash 8,502 117
Accounts receivable:
Electric service, net of $1,683,000 and $2,267,000
uncollectible allowance 61,946 71,759
Affiliated and other 10,910 11,577
Materials and supplies--at average cost:
Operating and construction 20,505 21,297
Fuel 17,525 20,305
Prepaid taxes 9,432 17,778
Deferred Income Taxes 8,935 7,972
Other 6,188 4,857
143,943 155,662
Deferred Charges:
Regulatory assets 162,800 164,900
Unamortized loss on reacquired debt 15,485 16,174
Other 9,561 11,012
187,846 192,086
Total Assets $ 1,460,727 $ 1,480,591
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 294,550 $ 294,550
Other paid-in capital 2,441 2,441
Retained earnings 214,570 208,761
511,561 505,752
Preferred stock 74,000 74,000
Long-term debt and QUIDS 474,754 489,995
1,060,315 1,069,747
Current Liabilities:
Short-term debt 8,699 29,868
Long-term debt due within one year 15,500 18,500
Accounts payable 16,595 24,582
Accounts payable to affiliates 6,639 6,500
Taxes accrued:
Federal and state income 11,905 8,068
Other 9,971 20,749
Deferred power costs 16,830 14,202
Interest accrued 11,997 8,577
Restructuring liabilities 12,891 3,693
Other 21,405 15,940
132,432 150,679
Deferred Credits and Other Liabilities:
Unamortized investment credit 20,982 22,590
Deferred income taxes 209,915 206,616
Regulatory liabilities 18,780 20,183
Restructuring liabilities 550 -
Other 17,753 10,776
267,980 260,165
Total Capitalization and Liabilities $ 1,460,727 $ 1,480,591
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
MONONGAHELA POWER COMPANY
Statement of Cash Flows
Nine Months Ended
September 30
1996 1995
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $46,618 $49,335
Depreciation 41,589 43,680
Deferred investment credit and income taxes, net (350) 2,766
Deferred power costs, net 1,108 14,597
Unconsolidated subsidiaries' dividends in excess of earnings 1,152 1,747
Allowance for other than borrowed funds used
during construction (185) (319)
Restructuring liability 11,119 3,437
Changes in certain current assets and
liabilities:
Accounts receivable, net 10,480 (3,720)
Materials and supplies 3,572 5,272
Other current assets 8,793 (324)
Deferred charges 4,239 (2,362)
Accounts payable (7,848) (15,483)
Taxes accrued (6,941) 8,974
Interest accrued 3,420 1,902
Other, net 12,388 8,668
129,154 118,170
CASH FLOWS FROM INVESTING:
Construction expenditures (40,475) (55,483)
Allowance for other than borrowed funds used
during construction 185 319
(40,290) (55,164)
CASH FLOWS FROM FINANCING:
Retirement of preferred stock - (41,405)
Issuance of long-term debt - 132,137
Retirement of long-term debt (18,500) (99,403)
Short-term debt, net (21,169) (12,635)
Dividends on capital stock:
Preferred stock (3,778) (5,296)
Common stock (37,032) (36,406)
(80,479) (63,008)
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 8,385 (2)
Cash and Temporary Cash Investments at January 1 117 132
Cash and Temporary Cash Investments at September 30 $ 8,502 $ 130
Supplemental cash flow information:
Cash paid during the quarter for:
Interest (net of amount capitalized) $24,304 $26,651
Income taxes 22,854 18,556
</TABLE>
See accompanying notes to financial statements.
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MONONGAHELA POWER COMPANY
Notes to Financial Statements
1. The Company's Notes to Financial Statements in the Allegheny
Power System companies' combined Annual Report on Form 10-K for
the year ended December 31, 1995, should be read with the
accompanying financial statements and the following notes.
With the exception of the December 31, 1995 balance sheet in
the aforementioned annual report on Form 10-K, the accompanying
financial statements appearing on pages 3 through 5 and these
notes to financial statements are unaudited. In the opinion of
the Company, such financial statements together with these
notes contain all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the
Company's financial position as of September 30, 1996, the
results of operations for the three and nine months ended
September 30, 1996 and 1995, and cash flows for the nine months
ended September 30, 1996 and 1995.
2. The Statement of Income reflects the results of past operations
and is not intended as any representation as to future results.
For purposes of the Balance Sheet and 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. Effective in 1996 the Company changed its method of reporting
certain bulk power transmission transactions with nonaffiliated
utilities, and reclassified prior year's bulk power revenues
and operation expenses to achieve a consistent presentation.
In prior years, some use of the Company's transmission system
was recorded as purchased power from selling utilities and as
sales of power to buying utilities. The benefit to the Company
was the difference between the two. Because of new Federal
Energy Regulatory Commission requirements, the Company
predominantly does not "buy" and "sell" such energy, but rather
a transmission fee is charged.
Under the new reporting method all such transactions are
recorded on a net revenue basis. The effect of the
reclassification was to reduce amounts reported for bulk power
transaction revenues and operation expenses by $20.8 million
and $58.3 million for the three and nine months ended September
1995, respectively, with no change in operating income or net
income.
4. As reported in the 1995 third quarter 10-Q, the System is
undergoing a reorganization and reengineering process
(restructuring) to simplify its management structure and to
increase efficiency. In March 1996, the Company and its
affiliates announced additional restructuring plans which
included consolidating operating divisions, and centralizing
and changing many accounting, customer services, and other
functions. As of September 1996, the Company and its
affiliates reduced their work force by about 750 employees.
The reductions were accomplished through an enhanced separation
plan, attrition, and layoffs. An additional reduction of about
250 employees during the next two or three years will occur
primarily
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through attrition, early retirement packages, and, in the union
workforce, pursuant to appropriate contract terms.
Restructuring charges previously recorded were adjusted and
additional charges were recorded in the third quarter to
reflect current estimates. Restructuring charges reflect
estimated liabilities for severance, employee termination
costs, and other restructuring costs. Estimated additional
restructuring charges of about $8 to $10 million will be
recorded as the liabilities are incurred. A summary of
restructuring liabilities is provided below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 1996 September 1996
(Millions of Dollars)
<S> <C> <C>
Restructuring liability (before tax):
Balance at beginning of period $12.8 $ 3.7
Accruals/adjustments 2.0 15.9
Benefit plans curtailment
liabilities/adjustments* 1.6 (1.4)
Less payments (3.0) (4.8)
Balance at end of period $13.4 $13.4
</TABLE>
*Primarily recorded in other deferred credits.
5. The Company owns 27% of the common stock of Allegheny
Generating Company (AGC), and affiliates of the Company own the
remainder. AGC owns an undivided 40% interest, 840 MW, in the
2,100-MW pumped-storage hydroelectric station in Bath County,
Virginia, operated by the 60% owner, Virginia Power Company, a
nonaffiliated utility. Following is a summary of income
statement information for AGC:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Electric operating revenues $20,825 $21,573 $62,757 $65,730
Operation & maintenance expense 1,299 1,324 3,633 4,691
Depreciation 4,290 4,274 12,870 12,722
Taxes other than income taxes 1,174 1,221 3,582 3,768
Federal income taxes 3,296 3,410 10,002 10,135
Interest charges 4,081 4,385 12,490 13,802
Other income, net (1) (5) (4) (14)
Net income $ 6,686 $ 6,964 $20,184 $20,626
</TABLE>
The Company's share of the equity in earnings above was $1.8
million and $1.9 million for the three months ended September
30, 1996 and 1995, respectively, and $5.4 million and $5.6
million for the nine months ended September 30, 1996 and 1995,
respectively, and was included in other income, net, on the
Statement of Income.
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6. Common stock dividends per share declared during the periods
for which income statements are included are as follows:
<TABLE>
<CAPTION>
1996 1995
Number Amount Number Amount
of Shares Per Share of Shares Per Share
<S> <C> <C> <C> <C>
First Quarter 5,891,000 $2.10 5,891,000 $2.07
Second Quarter 5,891,000 $2.09 5,891,000 $2.07
Third Quarter 5,891,000 $2.10 5,891,000 $2.04
</TABLE>
Earnings per share are not reported inasmuch as the common
stock of the Company is 100% owned by its parent, Allegheny
Power System, Inc.
<PAGE>
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MONONGAHELA POWER COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995
Review of Operations
NET INCOME
Net income for the third quarter of 1996 was $16.9
million compared with $17.0 million for the corresponding 1995 period.
For the first nine months of 1996, net income was $46.6 million compared
with $49.3 million for the corresponding 1995 period.
The three and nine-month periods ended September 1996
include a restructuring charge of $2.0 ($1.2 million, net of taxes) and
$15.9 million ($9.5 million, net of taxes), respectively. The three and
nine month periods ended September 1995 include a restructuring charge of
$3.4 million ($2.1 million, net of taxes). Restructuring activities
reported in the first six months continued in the third quarter (see Note
4 to the Financial Statements).
The decrease in earnings for the third quarter,
excluding restructuring charges, was primarily due to a decrease in
kilowatt-hour (kWh) sales to residential customers because of relatively
cool weather this summer compared with the extremely hot weather in the
summer of 1995. The increase in year-to-date earnings, excluding
restructuring charges, was primarily due to lower expenses, primarily
operations expense, taxes, and depreciation.
SALES AND REVENUES
Retail kWh sales to residential, commercial, and
industrial customers in the third quarter decreased 10%, 2%, and 3%,
respectively. Retail kWh sales in the first nine months to residential and
commercial customers increased 1% and 3%, respectively, and to industrial
customers remained about the same. Decreased weather-related sales in the
third quarter largely due to cooling degree days that were more than 20%
below normal and 40% below the corresponding 1995 period more than offset
growth in the number of customers which resulted in the decrease in
residential and commercial sales. The increase in kWh sales to
residential and commercial customers in the first nine months was due to
increases in both the number of customers and usage. Heating degree days
in the relatively cold January through April 1996 period were 8% above the
corresponding 1995 period. The decrease in kWh sales to industrial
customers in the third quarter resulted primarily from decreased sales to
chemicals customers. Revenues from sales to industrial customers
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decreased in the nine months ended September 1996 due primarily to a
decrease in the fuel and energy cost component. The changes in revenues
from retail customers resulted from the following:
<TABLE>
<CAPTION>
Change from Prior Periods
Quarter Nine Months
(Millions of Dollars)
<S> <C> <C>
Change in kWh sales $ (5.7) $ 1.0
Fuel and energy cost adjustment clauses* (7.1) (15.2)
Other, primarily a rate increase 1.4 4.6
$(11.4) $(9.6)
</TABLE>
*Changes in revenues from fuel and energy cost adjustment
clauses have little effect on net income.
The change in wholesale and other revenues for the
three and nine months ended September 1996 resulted primarily from changes
in sales of capacity, energy, and spinning reserve to other affiliated
companies.
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KWh deliveries to and revenues from bulk power
transactions are comprised of the following items:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995* 1996 1995*
<S> <C> <C> <C> <C>
KWh deliveries (in billions):
From transmission services 1.0 .9 3.2 2.5
From sale of Company generation - .1 .1 .1
1.0 1.0 3.3 2.6
Revenues (in millions):
From transmission services $3.2 $2.7 $ 9.8 $ 7.7
From sale of Company generation .8 1.0 3.6 2.7
$4.0 $3.7 $13.4 $10.4
</TABLE>
Increased transmission services and sales of Company
generation resulted primarily from increased activity from power
marketers. About 90% of the benefits from bulk power transactions are
passed on to retail customers and have little effect on net income.
OPERATING EXPENSES
Fuel expenses for the third quarter and first nine
months of 1996 decreased 14% and increased 2%, respectively. The change
in fuel expenses for both periods was due primarily to changes 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 net income.
"Purchased power and exchanges" represents power
purchases from and exchanges with nonaffiliated utilities and purchases
from qualified facilities under the Public Utility Regulatory Policies Act
of 1978 (PURPA), capacity charges paid to Allegheny Generating Company
(AGC), an affiliate partially owned by the Company, and other transactions
with affiliates made pursuant to a power supply agreement whereby each
company uses the most economical generation available in the Allegheny
Power System at any given time, and is comprised of the following items:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995* 1996 1995*
(Millions of Dollars)
<S> <C> <C> <C> <C>
Nonaffiliated transactions:
Purchased power:
From PURPA generation $16.6 $14.3 $50.7 $50.4
Other 2.0 1.8 7.8 7.8
Power exchanges - (.6) .9 (.3)
Affiliated transactions:
AGC capacity charges 5.0 5.2 15.3 15.5
Energy and spinning reserve
charges - - - .4
$23.6 $20.7 $74.7 $73.8
</TABLE>
*Prior period amounts have been reclassified for comparative purposes to
reflect a change in the method of reporting certain bulk power
transmission transactions with nonaffiliated utilities. See Note 3 to
the Financial Statements for further information.
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The cost of power and capacity purchased for use by the
Company, including power from PURPA generation and affiliated
transactions, is mostly recovered from customers currently through the
regular fuel and energy cost recovery procedures followed by the Company's
regulatory commissions and is primarily subject to deferred power cost
procedures with the result that changes in such costs have little effect
on net income.
The changes in other operation expense for the three
and nine months ended September 1996 resulted primarily from restructuring
charges which are discussed in Note 4 to the Financial Statements.
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. 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 and the amount of
work found necessary when the equipment is dismantled.
The decrease in depreciation expense of $.4 million and
$2.1 million for the three and nine months ended September 1996,
respectively, was due to a reduction in depreciation rates of about $4
million annually, effective in January 1996.
Taxes other than income taxes increased $2.2 million in
the first nine months of 1996 due primarily to a prior period adjustment
in West Virginia Business and Occupation taxes.
The net changes in federal and state income taxes for
the third quarter and first nine-months, respectively, resulted primarily
from variances in income before income taxes.
The decrease in other income, net for the third quarter
and first nine month periods was due primarily to a write-off of a
deferred return on West Virginia expenditures related to the Clean Air Act
Amendments of 1990 and to income in the 1995 periods for proceeds from the
sale of timber and for interest income.
Financial Condition and Requirements
The Company's discussion on Financial Condition and
Requirements and Changes in the Electric Utility Industry in the Allegheny
Power System companies' combined Annual Report on Form 10-K for the year
ended December 31, 1995 should be read with the following information.
In the normal course of business, the Company is
subject to various contingencies and uncertainties relating to its
operations and construction programs, including cost recovery in the
regulatory process, laws, regulations and uncertainties related to
environmental matters, and legal actions.
The Company continues to advocate true competition in
the electric utility industry. The Company is very proactive in its
efforts to promote deregulation in the electric utility industry in the
states in which it serves. The Company also believes that a Federal
framework of legislation to
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speed customer choice and provide uniform rules for all players is
necessary because of differences among the states. Along with Federal
legislation, the Company supports deregulation of all generation,
regulation of transmission by the Federal Energy Regulatory Commission,
and regulation of distribution companies by the states.
MONONGAHELA POWER COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended September 30, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (27) Financial Data Schedule
(b) No reports on Form 8-K were filed on behalf of the
Company for the quarter ended September 30, 1996.
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.
MONONGAHELA POWER COMPANY
/s/ THOMAS J. KLOC
Thomas J. Kloc
Controller
(Chief Accounting Officer)
November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,502
<SECURITIES> 0
<RECEIVABLES> 74,539
<ALLOWANCES> 1,683
<INVENTORY> 38,030
<CURRENT-ASSETS> 143,943
<PP&E> 1,853,846
<DEPRECIATION> 782,000
<TOTAL-ASSETS> 1,460,727
<CURRENT-LIABILITIES> 132,432
<BONDS> 474,754
0
74,000
<COMMON> 294,550
<OTHER-SE> 217,011
<TOTAL-LIABILITY-AND-EQUITY> 1,460,727
<SALES> 479,910
<TOTAL-REVENUES> 479,910
<CGS> 310,303
<TOTAL-COSTS> 382,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,748
<INCOME-PRETAX> 73,778
<INCOME-TAX> 27,160
<INCOME-CONTINUING> 46,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,618
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
