<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 June 30, 1997
Commission File Number 0-14688
ALLEGHENY GENERATING COMPANY
(Exact name of registrant as specified in its charter)
Virginia 13-3079675
(State of Incorporation) (I.R.S. Employer Identification No.)
10435 Downsville Pike, Hagerstown, Maryland 21740-1766
Telephone Number - 301-790-3400
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 August 13, 1997, 1,000 shares of the Common Stock ($1.00 par value)
of the registrant were outstanding.
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ALLEGHENY GENERATING COMPANY
Form 10-Q for Quarter Ended June 30, 1997
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of income - Three and six months ended
June 30, 1997 and 1996 3
Balance sheet - June 30, 1997
and December 31, 1996 4
Statement of cash flows - Six months ended
June 30, 1997 and 1996 5
Notes to financial statements 6-7
Management's discussion and analysis of financial
condition and results of operations 8
PART II--OTHER INFORMATION 9-10
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ALLEGHENY GENERATING COMPANY
Statement of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
(Thousands of Dollars)
<S> <C> <C> <C> <C>
ELECTRIC OPERATING REVENUES $ 20,408 $ 21,023 $ 40,624 $ 41,932
OPERATING EXPENSES:
Operation and maintenance expense 1,471 1,215 2,756 2,334
Depreciation 4,284 4,290 8,568 8,580
Taxes other than income taxes 1,201 1,198 2,396 2,408
Federal income taxes 3,141 3,362 6,265 6,706
Total Operating Expenses 10,097 10,065 19,985 20,028
Operating Income 10,311 10,958 20,639 21,904
OTHER INCOME, NET 1 - 1 3
Income Before Interest Charges 10,312 10,958 20,640 21,907
INTEREST CHARGES:
Interest on long-term debt 3,685 3,924 7,413 7,917
Other interest 232 257 464 492
Total Interest Charges 3,917 4,181 7,877 8,409
NET INCOME $ 6,395 $ 6,777 $ 12,763 $ 13,498
</TABLE>
See accompanying notes to financial statements.
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ALLEGHENY GENERATING COMPANY
Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
<S> <C> <C>
At original cost, including $676,000
and $508,000 under construction $ 837,233 $ 837,050
Accumulated depreciation (184,743) (176,178)
652,490 660,872
Current Assets:
Cash 42 131
Accounts receivable from parents 2,248 1,337
Materials and supplies - at average cost 2,044 2,092
Prepaid taxes 3,684 3,860
Other 514 239
8,532 7,659
Deferred Charges:
Regulatory assets 8,971 14,475
Unamortized loss on reacquired debt 8,770 9,147
Other 220 255
17,961 23,877
Total Assets $ 678,983 $ 692,408
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock - $1.00 par value per share,
authorized 5,000 shares, outstanding
1,000 shares $ 1 $ 1
Other paid-in capital 197,867 202,954
197,868 202,955
Long-term debt:
Debentures, net 148,689 148,642
Commercial paper - 19,992
Medium-term notes 10,000 60,000
Notes payable to affiliates 14,600 -
371,157 431,589
Current Liabilities:
Long-term debt due within one year 60,000 10,600
Accounts payable 46 222
Interest accrued 4,689 4,709
Taxes accrued 9 -
64,744 15,531
Deferred Credits:
Unamortized investment credit 49,004 49,665
Deferred income taxes 166,623 168,168
Regulatory liabilities 27,455 27,455
243,082 245,288
Total Capitalization and Liabilities $ 678,983 $ 692,408
</TABLE>
See accompanying notes to financial statements
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ALLEGHENY GENERATING COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $12,763 $13,498
Depreciation 8,568 8,580
Deferred investment credit and income taxes, net 3,297 3,451
Changes in certain current assets and
liabilities:
Accounts receivable (911) 1,329
Materials and supplies 48 (144)
Accounts payable (176) 51
Taxes accrued 9 (98)
Interest accrued (20) (86)
Other, net 363 (59)
23,941 26,522
CASH FLOWS FROM INVESTING:
Construction expenditures (188) (211)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt (5,992) (8,596)
Cash dividends on common stock (17,850) (17,635)
(23,842) (26,231)
NET CHANGE IN CASH (89) 80
Cash at January 1 131 31
Cash at June 30 $ 42 $ 111
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $7,433 $8,029
Income taxes 2,792 3,324
</TABLE>
See accompanying notes to financial statements.
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ALLEGHENY GENERATING 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 thereto contain all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the
Company's financial position as of June 30, 1997, and the
results of operations for the three and six months ended June
30, 1997 and 1996, and cash flows for the six months ended June
30, 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 repurchase agreements,
are considered to be the equivalent of cash.
3. In September 1996, the Securities and Exchange Commission (SEC)
approved the Company's request to pay common dividends from
time to time through December 31, 2001, out of capital to the
extent permitted under applicable corporation law and any
applicable financing agreements which restrict distributions to
shareholders. The payment of dividends out of capital surplus
will not be detrimental to the financial integrity or working
capital of either the Company or its parents, nor will it
adversely affect the protections due debt security holders.
4. On April 7, 1997, Allegheny Power System, Inc. (Allegheny
Power) 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, Inc. (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, including DQE, Inc.
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 by May 1, 1998. On May 2, 1997,
Allegheny Power filed a registration statement on Form S-4
containing a joint proxy statement/prospectus with DQE, Inc.
concerning the merger and the transactions contemplated
thereby. In late June, the S-4 became effective
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allowing Allegheny Power and DQE, Inc. to pursue shareholder
approval for the proposed merger that would create Allegheny
Energy. Allegheny Power and DQE, Inc. each held separate
shareholder meetings on August 7, 1997, at which the
combination of the two companies was approved by the necessary
number of shareholders of both companies. At Allegheny Power's
meeting, the necessary number of shareholders also approved the
change in Allegheny Power's name to Allegheny Energy, Inc.
5. Other paid-in capital decreased $5,087,000 in the six months
ended June 30, 1997, representing the portion of common
dividends paid out of other paid-in capital. See also Note 3
above.
6. Income tax regulatory assets/(liabilities), net of ($18)
million at June 30, 1997, are primarily related to investments
in electric facilities.
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ALLEGHENY GENERATING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1997
WITH SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996
The changes in revenues and net income are primarily
due to a continuing reduction in the Company's net plant (the major
component of rate base).
The decrease in interest on long-term debt in 1997 was
primarily the result of a decrease in the average amount of long-term debt
outstanding.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company's discussion on Liquidity and Capital
Requirements and Review of Operations 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.
Pursuant to a settlement agreement filed April 4, 1996,
with the Federal Energy Regulatory Commission, the Company's return on
equity (ROE) was set at 11% for 1996 and will continue at that rate until
the time any affected party seeks renegotiation of the ROE. Notice of
such intent to seek a revision in ROE must be filed during a notice period
each year between November 1 and November 15. No requests for change were
filed during the 1996 notice period. Therefore, the Company's ROE will
remain at 11% for 1997.
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ALLEGHENY GENERATING COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended June 30, 1997
ITEM 5. OTHER INFORMATION
In late June, the S-4 registration statement filed by
Allegheny Power System, Inc. (Allegheny Power) became effective, allowing
Allegheny Power and DQE, Inc., parent company of Duquesne Light Company,
to pursue shareholder approval for the proposed merger and a change of the
company name to Allegheny Energy, Inc. (Allegheny Energy). Allegheny
Power and DQE, Inc. held shareholder meetings on August 7, 1997, at which
the combination of the two companies and the name change were approved by
a vote of shareholders.
On August 1, 1997, Allegheny Power and DQE, Inc. filed
applications for several major approvals related to the proposed merger of
the two companies. In filings with the Federal Energy Regulatory
Commission (FERC), Pennsylvania Public Utility Commission (PA PUC), and
Maryland Public Service Commission (MD PSC), Allegheny Power and DQE, Inc.
outlined their restructuring and merger plans as discussed below.
The FERC filing includes commitments concerning rate
freezes, rate reductions, and electrical system access options that will
spread the positive effects of the merger to many stakeholders. The
filing includes the offering of a single transmission rate which is less
than the stand-alone rate for the two companies, offers partial rate
freezes to wholesale customers which have contracts expiring after 1998,
and includes a commitment to join or form an independent system operator
(ISO).
The Company's Pennsylvania parent, West Penn Power
Company (West Penn) and DQE, Inc. filed individual restructuring plans
with the PA PUC and, as part of a joint restructuring plan, have also
filed their merger application. The filings address unbundled rates for
generation, transmission, and distribution services; stranded costs;
merger synergy benefits; and other issues as required by Pennsylvania's
Electricity Generation Customer Choice and Competition Act. Among other
benefits, West Penn's restructuring filing unbundles its rates and tariffs
separate from those of DQE's utility subsidiary, Duquesne Light. DQE's
restructuring filing includes a redesign of rates and provides for other
benefits. The merger filing offers additional detail on the expected
synergy benefits of the merger and an allocation of the benefits to
customers and shareholders of the two companies.
Allegheny Power filed with the MD PSC requesting
approval for the issuance of stock to exchange for DQE stock upon merger
approval. Allegheny Power is a Maryland Corporation. The filing also
discussed the benefits of the merger to Maryland including lower rates for
customers and improved operating efficiencies over time.
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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 June 30, 1997.
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 GENERATING COMPANY
/s/ THOMAS J. KLOC
Thomas J. Kloc
Controller
(Chief Accounting Officer)
August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 2,248
<ALLOWANCES> 0
<INVENTORY> 2,044
<CURRENT-ASSETS> 8,532
<PP&E> 837,233
<DEPRECIATION> 184,743
<TOTAL-ASSETS> 678,983
<CURRENT-LIABILITIES> 64,744
<BONDS> 173,289
0
0
<COMMON> 1
<OTHER-SE> 197,867
<TOTAL-LIABILITY-AND-EQUITY> 678,983
<SALES> 40,624
<TOTAL-REVENUES> 40,624
<CGS> 2,756
<TOTAL-COSTS> 13,720
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,877
<INCOME-PRETAX> 19,028
<INCOME-TAX> 6,265
<INCOME-CONTINUING> 12,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,763
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>*All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
