<PAGE>
Page 1 of 12
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, 1997
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 14, 1997, 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>
- 2 -
MONONGAHELA POWER COMPANY
Form 10-Q for Quarter Ended March 31, 1997
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of income - Three months ended
March 31, 1997 and 1996 3
Balance sheet - March 31, 1997
and December 31, 1996 4
Statement of cash flows - Three months ended
March 31, 1997 and 1996 5
Notes to financial statements 6-7
Management's discussion and analysis of financial
condition and results of operations 8-10
PART II--OTHER INFORMATION 11-12
<PAGE>
- 3 -
MONONGAHELA POWER COMPANY
Statement of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C>
Residential $ 56,040 $ 61,320
Commercial 30,253 31,506
Industrial 47,792 53,791
Wholesale and other, including affiliates 24,537 24,949
Bulk power transactions, net 4,181 4,051
Total Operating Revenues 162,803 175,617
OPERATING EXPENSES:
Operation:
Fuel 35,131 37,687
Purchased power and exchanges, net 25,847 26,736
Deferred power costs, net (3,807) 3,257
Other 18,378 18,213
Maintenance 17,958 19,521
Restructuring charges - 17,372
Depreciation 14,348 13,929
Taxes other than income taxes 10,317 10,418
Federal and state income taxes 14,151 7,584
Total Operating Expenses 132,323 154,717
Operating Income 30,480 20,900
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 136 9
Other income, net 1,658 1,928
Total Other Income and Deductions 1,794 1,937
Income Before Interest Charges 32,274 22,837
INTEREST CHARGES:
Interest on long-term debt 9,119 9,288
Other interest 759 574
Allowance for borrowed funds used during
construction (160) (14)
Total Interest Charges 9,718 9,848
NET INCOME $ 22,556 $ 12,989
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 4 -
MONONGAHELA POWER COMPANY
Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
At original cost, including $34,674,000
and $33,366,000 under construction 1,890,732 1,879,622
Accumulated depreciation (804,555) (790,649)
1,086,177 1,088,973
Investments:
Allegheny Generating Company - common stock at equity 54,126 54,798
Other 330 346
54,456 55,144
Current Assets:
Cash 525 2,290
Accounts receivable:
Electric service, net of $2,005,000 and $1,949,000
uncollectible allowance 71,177 65,615
Affiliated and other 11,597 13,365
Materials and supplies - at average cost:
Operating and construction 19,117 19,785
Fuel 20,514 16,694
Prepaid taxes 15,480 18,331
Deferred income taxes 4,192 6,442
Other 4,025 4,251
146,627 146,773
Deferred Charges:
Regulatory assets 166,352 171,692
Unamortized loss on reacquired debt 15,026 15,256
Other 8,222 8,917
189,600 195,865
Total Assets $1,476,860 $1,486,755
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $294,550 $294,550
Other paid-in capital 2,441 2,441
Retained earnings 236,518 215,221
533,509 512,212
Preferred stock 74,000 74,000
Long-term debt and QUIDS 455,327 474,841
1,062,836 1,061,053
Current Liabilities:
Short-term debt 9,298 31,139
Long-term debt due within one year 34,600 15,500
Accounts payable 4,971 12,997
Accounts payable to affiliates 10,711 10,170
Taxes accrued:
Federal and state income 15,935 3,788
Other 16,295 21,464
Deferred power costs 9,030 12,419
Interest accrued 12,060 8,234
Restructuring liability 8,462 13,997
Other 11,638 13,613
133,000 143,321
Deferred Credits and Other Liabilities:
Unamortized investment credit 19,908 20,445
Deferred income taxes 224,404 225,841
Regulatory liabilities 18,192 18,554
Other 18,520 17,541
281,024 282,381
Total Capitalization and Liabilities $1,476,860 $1,486,755
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 5 -
MONONGAHELA POWER COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $22,556 $12,989
Depreciation 14,348 13,929
Deferred investment credit and income taxes, net 4,664 (5,530)
Deferred power costs, net (3,807) 3,257
Unconsolidated subsidiaries' dividends in excess of earnings 688 698
Allowance for other than borrowed funds used
during construction (136) (9)
Restructuring liability - 16,349
Changes in certain current assets and
liabilities:
Accounts receivable, net (3,794) (1,350)
Materials and supplies (3,152) 622
Accounts payable (7,485) (2,629)
Taxes accrued 6,978 6,294
Interest accrued 3,826 4,160
Other, net (1,349) 12,243
33,337 61,023
CASH FLOWS FROM INVESTING:
Construction expenditures (11,638) (11,090)
Allowance for other than borrowed funds used
during construction 136 9
(11,502) (11,081)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt (500) (18,500)
Short-term debt, net (21,841) (17,474)
Dividends on capital stock:
Preferred stock (1,259) (1,259)
Common stock - (12,371)
(23,600) (49,604)
NET CHANGE IN CASH (1,765) 338
Cash at January 1 2,290 117
Cash at March 31 $ 525 $ 455
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $5,511 $2,734
Income taxes - -
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 6 -
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, 1996, should be read with the
accompanying financial statements and the following notes.
With the exception of the December 31, 1996, 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 March 31, 1997, and the
results of operations and cash flows for the three months ended
March 31, 1997 and 1996.
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. 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 Electric and Power
Company, a nonaffiliated utility. Following is a summary of
income statement information for AGC:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(Thousands of Dollars)
<S> <C> <C>
Electric operating revenues $20,216 $20,909
Operation and maintenance expense 1,285 1,119
Depreciation 4,284 4,290
Taxes other than income taxes 1,195 1,210
Federal income taxes 3,124 3,344
Interest charges 3,960 4,228
Other income, net - (3)
Net income $ 6,368 $ 6,721
</TABLE>
The Company's share of the equity in earnings above was $1.7
million and $1.8 million for the three months ended March 31,
1997 and 1996, respectively, and was included in other income,
net, on the Statement of Income.
<PAGE>
- 7 -
4. Restructuring charges in the first quarter of 1996 ($10.4
million, net of tax) include expenses associated with the
reorganization, which is essentially complete.
5. On April 7, 1997, Allegheny Power System, Inc. and DQE, Inc.,
parent company of Duquesne Light Company, announced that they
have agreed to merge in a tax-free, stock-for-stock
transaction. The combined company will be called Allegheny
Energy. It is expected that Allegheny Energy will continue to
be operated as an integrated electric utility holding company
and that the Company and its regulated electric utility
affiliates will continue to exist as separate legal entities.
The merger is conditioned, among other things, upon the
approval of each company's shareholders and the necessary
approvals of various state and federal regulatory agencies,
including the public utility commissions in Pennsylvania and
Maryland, the Securities and Exchange Commission, the Federal
Energy Regulatory Commission, and the Nuclear Regulatory
Commission. The companies are hopeful that the required
approvals can be obtained within 12 to 18 months.
<PAGE>
- 8 -
MONONGAHELA POWER COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF FIRST QUARTER OF 1997 WITH FIRST QUARTER OF 1996
Review of Operations
NET INCOME
Net income for the first quarter of 1997 and 1996, and
the after tax restructuring charges included in the 1996 period are shown
below.
<TABLE>
<CAPTION>
Net Income
Three Months Ended
March 31
1997 1996
(Millions of Dollars)
<S> <C> <C>
Net Income as Reported $22.6 $13.0
Restructuring Charges - 10.4
Net Income Adjusted $22.6 $23.4
</TABLE>
Mild weather during the first quarter of 1997 was the
primary reason for the decrease in the adjusted net income before
restructuring charges.
SALES AND REVENUES
In the first quarter of 1997, retail kilowatt-hour
(kWh) sales to residential, commercial, and industrial customers decreased
6%, 1%, and 7%, respectively. Residential kWh sales, which are more
weather sensitive than the commercial and industrial classes, decreased
due to heating degree days that were 16% below the corresponding 1996
period and more than 8% below normal. Commercial kWh sales also decreased
primarily because of the mild weather. Industrial kWh sales decreased for
a variety of reasons, primarily in the iron and steel and chemicals
customers groups. The decrease in revenues from sales to residential,
commercial, and industrial customers resulted from the following:
<TABLE>
<CAPTION>
Decrease from Prior Period
(Millions of Dollars)
<S> <C>
Decreased kWh sales $ (4.8)
Fuel and energy cost adjustment clauses* (7.5)
Other (.2)
Decrease in retail revenues $(12.5)
</TABLE>
* Changes in revenues from fuel and energy cost adjustment
clauses have little effect on net income.
<PAGE>
- 9 -
Revenues from bulk power transactions consist of the
following items:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(Millions of Dollars)
Revenues:
<S> <C> <C>
From transmission services $3.1 $3.4
From sale of Company generation 1.1 .7
Total $4.2 $4.1
</TABLE>
About 90% of the aggregate benefits from bulk power
transactions are passed on to retail customers through fuel cost
adjustment clauses and have little effect on net income.
OPERATING EXPENSES
Fuel expenses decreased 7% due primarily to a 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 net income.
"Purchased Power and Exchanges, Net" 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 consists of the following items:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(Millions of Dollars)
<S> <C> <C>
Nonaffiliated transactions:
Purchased power:
From PURPA generation $18.0 $17.1
Other 2.1 3.7
Power exchanges, net .9 .8
Affiliated transactions:
AGC capacity charges 4.8 5.1
Purchased power and exchanges, net $25.8 $26.7
</TABLE>
Other purchased power decreased because of decreased
sales to retail customers. The cost of power purchased, including power
from PURPA generation and affiliated transactions, is mostly recovered
from customers currently through the regular fuel and energy cost recovery
procedures with the result that changes in such costs have little effect
on net income.
<PAGE>
- 10 -
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.
Restructuring charges in the first quarter of 1996
include expenses associated with the reorganization, which is essentially
complete.
The depreciation expense increase resulted from
additions to electric plant. Future depreciation expense increases are
expected to be less than historical increases because of reduced levels of
planned capital expenditures.
The increase in federal and state income taxes resulted
primarily from an increase 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 Competition In Core Business in the Allegheny Power
System companies' combined Annual Report on Form 10-K for the year ended
December 31, 1996, 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, to the restructuring of the electric utility
industry, merger activities, and legal actions.
The Company continues to advocate true competition in
the electric utility industry. Speaking on behalf of the Partnership for
Customer Choice (PCC), a group of utilities established in 1996 to push
for the enactment of federal legislation to bring real choice to electric
consumers by a date certain, Allegheny Power System's President and CEO
continues to deliver a strong, clear message to lawmakers and others that
federal legislation is needed to advance fair and equal competition in the
electric utility industry that would eliminate a patchwork of state-by-
state customer choice plans.
<PAGE>
- 11 -
MONONGAHELA POWER COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 1997
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 21, 1997. 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 Michael P. Morrell
William L. Bennett Alan J. Noia
Klaus Bergman Jay S. Pifer
Wendell F. Holland Steven H. Rice
Phillip E. Lint Gunnar E. Sarsten
Edward H. Malone Peter L. Shea
Frank A. Metz, Jr. Peter J. Skrgic
ITEM 5. OTHER INFORMATION
On April 7, 1997, Allegheny Power System, Inc. and DQE,
Inc., parent company of Duquesne Light Company, announced that they have
agreed to merge in a tax-free, stock-for-stock transaction. The combined
company will be called Allegheny Energy. It is expected that Allegheny
Energy will continue to be operated as an integrated electric utility
holding company and that the Company and its regulated electric utility
affiliates will continue to exist as separate legal entities.
The merger is conditioned, among other things, upon the
approval of each company's shareholders and the necessary approvals of
various state and federal regulatory agencies, including the public
utility commissions in Pennsylvania and Maryland, the Securities and
Exchange Commission, the Federal Energy Regulatory Commission, and the
Nuclear Regulatory Commission. The companies are hopeful that the
required approvals can be obtained within 12 to 18 months.
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 March 31, 1997.
<PAGE>
- 12 -
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)
May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 525
<SECURITIES> 0
<RECEIVABLES> 84,779
<ALLOWANCES> 2,005
<INVENTORY> 39,631
<CURRENT-ASSETS> 146,627
<PP&E> 1,890,732
<DEPRECIATION> 804,555
<TOTAL-ASSETS> 1,476,860
<CURRENT-LIABILITIES> 133,000
<BONDS> 455,327
0
74,000
<COMMON> 294,550
<OTHER-SE> 238,959
<TOTAL-LIABILITY-AND-EQUITY> 1,476,860
<SALES> 162,803
<TOTAL-REVENUES> 162,803
<CGS> 93,507
<TOTAL-COSTS> 118,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,718
<INCOME-PRETAX> 36,707
<INCOME-TAX> 14,151
<INCOME-CONTINUING> 22,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,556
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
