Page 1 of 13
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, 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 May 15, 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.
<PAGE>
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MONONGAHELA POWER COMPANY
Form 10-Q for Quarter Ended March 31, 1996
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of income - Three months ended
March 31, 1996 and 1995 3
Balance sheet - March 31, 1996
and December 31, 1995 4
Statement of cash flows - Three months ended
March 31, 1996 and 1995 5
Notes to financial statements 6-7
Management's discussion and analysis of financial
condition and results of operations 8-11
PART II--OTHER INFORMATION 12-13
<PAGE>
<TABLE>
<CAPTION>
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MONONGAHELA POWER COMPANY
Statement of Income
Three Months Ended
March 31
1996** 1995
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C>
Residential $ 61,320 $ 56,818
Commercial 31,506 31,736
Industrial 53,791 54,486
Wholesale and other, including affiliates * 24,949 21,264*
Bulk power transactions, net * 4,051 3,688*
Total Operating Revenues 175,617 167,992
OPERATING EXPENSES:
Operation:
Fuel 37,687 35,235
Purchased power and exchanges * 26,736 25,440*
Deferred power costs, net 3,257 6,512
Other 35,572 18,781
Maintenance 19,534 18,830
Depreciation 13,929 14,488
Taxes other than income taxes 10,418 9,817
Federal and state income taxes 7,584 12,213
Total Operating Expenses 154,717 141,316
Operating Income 20,900 26,676
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 9 39
Other income, net 1,928 2,179
Total Other Income and Deductions 1,937 2,218
Income Before Interest Charges 22,837 28,894
INTEREST CHARGES:
Interest on long-term debt 9,288 8,888
Other interest 574 750
Allowance for borrowed funds used during
construction (14) (214)
Total Interest Charges 9,848 9,424
NET INCOME $ 12,989 $ 19,470
* 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.
**The 1996 period includes restructuring charges of $10.4 million, net of taxes.
See Note 4 on page 6.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- 4 -
MONONGAHELA POWER COMPANY
Balance Sheet
March 31, December 31,
1996 1995
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
At original cost, including $18,741,000
<S> <C> <C>
and $29,443,000 under construction $1,829,436 $1,821,613
Accumulated depreciation (758,372) (747,013)
1,071,064 1,074,600
Investments:
Allegheny Generating Company - common stock at equity 57,145 57,821
Other 400 422
57,545 58,243
Current Assets:
Cash 455 117
Accounts receivable:
Electric service, net of $2,316,000 and $2,267,000
uncollectible allowance 73,262 71,759
Affiliated and other 11,424 11,577
Materials and supplies--at average cost:
Operating and construction 20,520 21,297
Fuel 20,460 20,305
Prepaid taxes 13,383 17,778
Deferred income taxes 9,304 7,972
Other 3,983 4,857
152,791 155,662
Deferred Charges:
Regulatory assets 164,558 164,900
Unamortized loss on reacquired debt 15,944 16,174
Other 12,007 11,012
192,509 192,086
Total Assets $1,473,909 $1,480,591
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $294,550 $294,550
Other paid-in capital 2,441 2,441
Retained earnings 208,121 208,761
505,112 505,752
Preferred stock 74,000 74,000
Long-term debt and QUIDS 489,581 489,995
1,068,693 1,069,747
Current Liabilities:
Short-term debt 12,394 29,868
Long-term debt due within one year 500 18,500
Accounts payable 20,975 24,582
Accounts payable to affiliates 7,478 6,500
Taxes accrued:
Federal and state income 21,212 8,068
Other 13,899 20,749
Deferred power costs 18,094 14,202
Interest accrued 12,737 8,577
Restructuring liabilities 10,964 3,693
Other 20,151 15,940
138,404 150,679
Deferred Credits and Other Liabilities:
Unamortized investment credit 22,054 22,590
Deferred income taxes 203,314 206,616
Regulatory liabilities 19,823 20,183
Restructuring liabilities 5,950 -
Other 15,671 10,776
266,812 260,165
Total Capitalization and Liabilities $1,473,909 $1,480,591
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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MONONGAHELA POWER COMPANY
Statement of Cash Flows
Three Months Ended
March 31
1996 1995
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $12,989 $19,470
Depreciation 13,929 14,488
Deferred investment credit and income taxes, net (5,530) 448
Deferred power costs, net 3,257 6,512
Unconsolidated subsidiaries' dividends in excess of earnings 698 666
Allowance for other than borrowed funds used
during construction (9) (39)
Restructuring charges 16,349 -
Changes in certain current assets and
liabilities:
Accounts receivable, net (1,350) 276
Materials and supplies 622 (743)
Accounts payable (2,629) (12,059)
Taxes accrued 6,294 9,846
Interest accrued 4,160 (390)
Other, net 12,243 8,435
61,023 46,910
CASH FLOWS FROM INVESTING:
Construction expenditures (11,090) (18,005)
Allowance for other than borrowed funds used
during construction 9 39
(11,081) (17,966)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt (18,500) -
Short-term debt, net (17,474) (14,681)
Dividends on capital stock:
Preferred stock (1,259) (2,081)
Common stock (12,371) (12,194)
(49,604) (28,956)
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 338 (12)
Cash and Temporary Cash Investments at January 1 117 132
Cash and Temporary Cash Investments at March 31 $ 455 $ 120
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $2,734 $9,519
Income taxes - -
See accompanying notes to financial statements.
</TABLE>
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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 thereto contain all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the
Company's financial position as of March 31, 1996, and the
results of operations and cash flows for the three months ended
March 31, 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 $10.6 million
and $19.7 million for the three months ended March 31, 1996 and
1995, respectively, with no change in operating income or net
income.
4. As previously announced, the System is undergoing a
reorganization and reengineering process (restructuring) to
simplify its management structure and to increase efficiency.
On March 12, 1996, the Company and its affiliates announced
additional restructuring plans which include consolidating
operating divisions, and centralizing and changing many
accounting, customer services, and other functions. As a
consequence of this process, an additional work force reduction
of approximately 1,000 System employees will occur. It is
expected that approximately 50% of the positions will be
eliminated by July 1996 with the remaining positions eliminated
by 1998. Reductions will be accomplished through an enhanced
separation plan, attrition, and, in the union workforce,
pursuant to appropriate contract.
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Additional restructuring charges which reflect estimated
liabilities for severance and other employee termination costs
are estimated to be about $25 million ($15 million after tax)
of which $17.4 million ($10.4 million after tax) was recorded
in the first quarter of 1996. The remaining charges will be
recorded later, primarily in the third quarter of 1996, as
required by applicable accounting rules. A summary of
restructuring liabilities is provided below:
<TABLE>
<CAPTION>
First Quarter 1996
(Millions of Dollars)
Restructuring Liability (before tax):
<S> <C>
Balance at beginning of quarter $ 3.7
Add first quarter accrual 17.4
Less benefit plans curtailment
liabilities (3.1)*
Less first quarter payments (1.1)
Balance at end of quarter $16.9
*Primarily recorded in other deferred credits.
</TABLE>
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
March 31
1996 1995
(Thousands of Dollars)
<S> <C> <C>
Electric operating revenues $20,909 $22,096
Operation and maintenance expense 1,119 1,796
Depreciation 4,290 4,224
Taxes other than income taxes 1,210 1,299
Federal income taxes 3,344 3,223
Interest charges 4,228 4,985
Other income, net (3) -
Net income $ 6,721 $ 6,569
</TABLE>
The Company's share of the equity in earnings above was $1.8
million for each of the three months ended March 31, 1996 and
1995, and was included in other income, net, on the Statement
of Income.
6. Common stock dividends per share declared and paid during the
periods for which income statements are included are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Number of Shares 5,891,000 5,891,000
Amount per Share $2.10 $2.07
Earnings per share are not reported inasmuch as the common stock of the Company is 100% owned by its parent,
Allegheny Power System, Inc.
</TABLE>
<PAGE>
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MONONGAHELA POWER COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF FIRST QUARTER OF 1996 WITH FIRST QUARTER OF 1995
Review of Operations
NET INCOME
Net income for the first quarter of 1996 was $13.0
million, after reflecting a restructuring charge net of taxes of $10.4
million, compared with $19.5 million for the corresponding 1995 period.
The restructuring charge reflects estimated liabilities for severance and
other employee termination costs incurred to date for continuing
restructuring activities which commenced during the last half of 1995.
The 20% increase in earnings, excluding the restructuring charge, resulted
primarily from increased sales to retail customers.
SALES AND REVENUES
Retail kilowatt-hour (kWh) sales to residential,
commercial, and industrial customers increased 9%, 6%, and 4%,
respectively. The increase in kWh sales to residential and commercial
customers was primarily due to an increase in weather-related sales.
Colder temperatures in the first quarter of 1996 as compared to milder
first quarter 1995 weather, resulted in heating degree days 9% above
normal and 10% above the 1995 first quarter. The increase in kWh sales to
industrial customers was primarily due to higher sales to paper and iron
and steel customers. The increase in revenues from retail customers
resulted from the following:
<TABLE>
<CAPTION>
Change from Prior Period
(Millions of Dollars)
<S> <C>
Increased kWh sales $ 5.2
Fuel and energy cost adjustment clauses* (3.4)
Rate increase 1.7
Other .1
$ 3.6
</TABLE>
* Changes in revenues from fuel and energy cost adjustment
clauses have little effect on net income.
The increase in wholesale and other revenues resulted
primarily from continued increases 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
March 31
1996 1995*
KWh deliveries (in billions):
<S> <C> <C>
From transmission services 1.3 .7
From sale of Company generation - .1
1.3 .8
Revenues (in millions):
From transmission services $3.4 $2.6
From sale of Company generation .7 1.1
$4.1 $3.7
</TABLE>
Increased transmission services resulted primarily from
increased demand from power marketers. About 90% of the aggregate
benefits from bulk power and affiliated transactions are passed on to
retail customers and have little effect on net income.
OPERATING EXPENSES
Fuel expenses increased 7%, the net result of a 11%
increase in kWh generated and a 4% decrease in average coal prices. 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
March 31
1996 1995*
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
<S> <C> <C>
From PURPA generation $17.1 $16.8
Other 3.7 2.3
Power exchanges .8 .8
Affiliated transactions:
AGC capacity charges 5.1 5.2
Energy and spinning reserve charges - .3
$26.7 $25.4
</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.
<PAGE>
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Other purchased power increased because of increased sales to
retail customers and the availability of more economic energy. 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 increase in other operation expense 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. The Company is also experiencing, and expects to continue to
experience, increased expenditures due to the aging of its 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 and the amount of work found necessary when the equipment is
dismantled.
The decrease in federal and state income taxes resulted
primarily from a decrease in income before taxes.
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 Company.
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 final rules on open transmission access were released by
the Federal Energy Regulatory Commission (FERC) on April 24 and the
Company is in the process of reviewing the document. The first rule,
Order No. 888, requires utilities with transmission capacity to file open
access tariffs that offer to others transmission service that is
comparable to service they provide themselves. In addition, utilities
must apply the same tariffs offered to others to their own wholesale
energy sales and purchases. The Company has had an open access
transmission tariff on file with the FERC since December 1995. The Order
also provides for full recovery of stranded costs--
<PAGE>
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those costs that were prudently incurred to serve power customers and that
could go unrecovered if those customers use open access to move to another
supplier.
Order No. 889, which is also included in the rules, requires
utilities to establish electronic systems to share information about
available transmission capacity for wholesale transactions.
The FERC also proposed that each public utility would replace
the network and point-to-point tariffs in the open access rule with a
single capacity reservation tariff by the end of 1997.
<PAGE>
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MONONGAHELA POWER COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 1996
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
1. (a) Date and Kind of Meeting:
The annual meeting of shareholders was held at
Fairmont, West Virginia, on April 15, 1996. No
proxies were solicited.
(b) Election of Directors:
The holder of all 5,891,000 shares of common
stock voted to elect the following Directors of
the Company to hold office until the next annual
meeting of shareholders and until their
successors are duly chosen and qualified:
Eleanor Baum Alan J. Noia
William L. Bennett Jay S. Pifer
Klaus Bergman Steven H. Rice
Wendell F. Holland Gunnar E. Sarsten
Phillip E. Lint Peter L. Shea
Edward H. Malone Peter J. Skrgic
Frank A. Metz, Jr.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (27) Financial Data Schedule
(b) On March 13, 1996, the Company filed a Form 8-K for
the restructuring of its organization.
On April 11, 1996, the Company filed a Form 8-K
containing a Form of Change in Control Employment
Contract.
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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
THOMAS J. KLOC
Thomas J. Kloc
Controller
(Chief Accounting Officer)
May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 87,002
<ALLOWANCES> 2,316
<INVENTORY> 40,980
<CURRENT-ASSETS> 152,791
<PP&E> 1,829,436
<DEPRECIATION> 758,372
<TOTAL-ASSETS> 1,473,909
<CURRENT-LIABILITIES> 138,404
<BONDS> 489,581
294,550
0
<COMMON> 74,000
<OTHER-SE> 210,562
<TOTAL-LIABILITY-AND-EQUITY> 1,473,909
<SALES> 175,617
<TOTAL-REVENUES> 175,617
<CGS> 122,786
<TOTAL-COSTS> 147,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,848
<INCOME-PRETAX> 20,573
<INCOME-TAX> 7,584
<INCOME-CONTINUING> 12,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,989
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
