<PAGE>
Page 1 of 10
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, 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 November 13, 1997, 1,000 shares of the Common Stock ($1.00
par value) of the registrant were outstanding.
<PAGE>
- 2 -
ALLEGHENY GENERATING COMPANY
Form 10-Q for Quarter Ended September 30, 1997
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of income - Three and nine months ended
September 30, 1997 and 1996 3
Balance sheet - September 30, 1997
and December 31, 1996 4
Statement of cash flows - Nine months ended
September 30, 1997 and 1996 5
Notes to financial statements 6-8
Management's discussion and analysis of financial
condition and results of operations 9
PART II--OTHER INFORMATION 10
<PAGE>
- 3 -
ALLEGHENY GENERATING COMPANY
Statement of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Thousands of Dollars)
<S> <C> <C> <C> <C>
ELECTRIC OPERATING REVENUES $ 19,664 $ 20,825 $ 60,288 $ 62,757
OPERATING EXPENSES:
Operation and maintenance expense 856 1,299 3,612 3,633
Depreciation 4,284 4,290 12,852 12,870
Taxes other than income taxes 1,185 1,174 3,581 3,582
Federal income taxes 3,109 3,296 9,374 10,002
Total Operating Expenses 9,434 10,059 29,419 30,087
Operating Income 10,230 10,766 30,869 32,670
OTHER INCOME, NET 9,054 1 9,055 4
Income Before Interest Charges 19,284 10,767 39,924 32,674
INTEREST CHARGES:
Interest on long-term debt 3,624 3,847 11,037 11,764
Other interest 264 234 728 726
Total Interest Charges 3,888 4,081 11,765 12,490
NET INCOME $ 15,396 $ 6,686 $ 28,159 $ 20,184
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- 4 -
ALLEGHENY GENERATING COMPANY
Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS: (Thousands of Dollars)
<S> <C> <C>
Property, Plant, and Equipment:
At original cost, including ($8,010,000)
and $508,000 under construction $ 828,573 $ 837,050
Accumulated depreciation (189,026) (176,178)
639,547 660,872
Current Assets:
Cash 78 131
Accounts receivable from parents - 1,337
Notes receivable from affiliates 23,644 -
Materials and supplies - at average cost 2,026 2,092
Prepaid taxes 3,616 3,860
Other 367 239
29,731 7,659
Deferred Charges:
Regulatory assets 8,971 14,475
Unamortized loss on reacquired debt 8,582 9,147
Other 205 255
17,758 23,877
Total Assets $ 687,036 $ 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 199,263 202,954
199,264 202,955
Long-term debt:
Debentures, net 148,712 148,642
Commercial paper - 19,992
Medium-term notes 10,000 60,000
357,976 431,589
Current Liabilities:
Long-term debt due within one year 60,000 10,600
Accounts payable 22,372 222
Interest accrued 1,161 4,709
Taxes accrued 797 -
84,330 15,531
Deferred Credits:
Unamortized investment credit 48,673 49,665
Deferred income taxes 168,602 168,168
Regulatory liabilities 27,455 27,455
244,730 245,288
Total Capitalization and Liabilities $ 687,036 $ 692,408
</TABLE>
See accompanying notes to financial statements
<PAGE>
- 5 -
ALLEGHENY GENERATING COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $ 28,159 $ 20,184
Depreciation 12,852 12,870
Deferred investment credit and income taxes, net 4,945 5,176
Changes in certain current assets and
liabilities:
Accounts receivable 1,337 5,274
Materials and supplies 66 (132)
Accounts payable 22,150 86
Taxes accrued 797 926
Interest accrued (3,548) (3,707)
Other, net 5,772 1,461
72,530 42,138
CASH FLOWS FROM INVESTING:
Construction expenditures (188) (150)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt (20,592) (17,636)
Notes receivable (23,644) 0
Cash dividends on common stock (28,159) (24,238)
(72,395) (41,874)
NET CHANGE IN CASH (53) 114
Cash at January 1 131 31
Cash at September 30 $ 78 $ 145
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $14,617 $15,496
Income taxes 9,108 4,608
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 6 -
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, contain all adjustments
(which consist only of normal recurring adjustments)
necessary to present fairly the Company's financial position
as of September 30, 1997, and the results of operations for
the three and nine months ended September 30, 1997 and 1996,
and cash flows for the nine months ended September 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. (DQE), parent company of Duquesne Light
Company in Pittsburgh, Pennsylvania, 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 regulated electric
utility companies will continue to exist as separate legal
entities, including the Company, its parents, and Duquesne
Light Company.
The merger is conditioned, among other things, upon the
approval of each company's shareholders, the Pennsylvania
Public Utility Commission (PUC), the Securities and Exchange
Commission (SEC), the Federal Energy Regulatory Commission
(FERC), the Nuclear Regulatory Commission (NRC), and the
Department of Justice/Federal Trade Commission under the
Hart, Scott, Rudino legislation. Additionally, Allegheny
Power has requested the Maryland Public Service Commission
(PSC) to indicate its approval of the issuance of additional
Allegheny Power stock to accomplish the transaction. The
companies have established a schedule to obtain all
regulatory approvals by June 1, 1998. On May 2, 1997,
Allegheny Power
<PAGE>
- 7 -
filed a registration statement with the SEC on Form S-4
containing a joint proxy statement/prospectus with DQE
concerning the merger and the transactions contemplated
thereby. In late June, the S-4 became effective allowing
Allegheny Power and DQE to pursue shareholder approval for
the proposed merger that would create Allegheny Energy.
Allegheny Power and DQE each held a separate shareholder
meeting on August 7, 1997, at which the combination of the
two companies was decisively approved by the shareholders of
both companies. At Allegheny Power's meeting, the
shareholders also decisively approved the change in Allegheny
Power's name to Allegheny Energy, Inc. (Allegheny Energy).
On August 1, 1997, Allegheny Power and DQE jointly filed
requests for merger approval with the PUC and FERC, DQE filed
the necessary approval requests with the NRC, and Allegheny
Power filed its request with the PSC for approval to issue
Allegheny Power stock. The PUC has established a schedule of
proceedings which is expected to result in an approval order
by the end of May 1998. The FERC has not scheduled hearings.
Absent such hearings, Allegheny Energy expects a FERC order
on or before the end of May 1998. The PSC instituted a
proceeding against The Potomac Edison Company, the Company's
Maryland public utility parent, to examine the effect of the
merger on Maryland customers for which a final determination
is expected by May 1, 1998.
On September 16, 1997, Allegheny Power officially changed its
name to Allegheny Energy, Inc. by filing the appropriate
papers in Maryland. Allegheny Energy began trading on the
New York Stock Exchange under its new symbol, AYE, on October
1, 1997.
On September 29, 1997, the City of Pittsburgh filed an
antitrust and conspiracy lawsuit in Federal District Court
for the Western District of Pennsylvania against Allegheny
Power, one of the Company's parents, West Penn Power Company
(West Penn), DQE, and Duquesne Light Company. The verified
complaint alleges eight counts, two of which are claimed
violations of the federal antitrust statutes and six are
state law claims. The relief sought includes a request that
the proposed merger between Allegheny Power and DQE be
stopped, and a request for unspecified monetary damages
relating to alleged collusion by the two companies in their
actions dealing with proposals to provide electric service to
the city's redevelopment zones. On October 27, 1997,
Allegheny Power, West Penn, DQE, and Duquesne Light Company
filed motions to dismiss the complaint. While Allegheny
Energy cannot predict the outcome of this action, it believes
the suit is without merit.
5. Other paid-in capital decreased $3,691,000 in the nine months
ended September 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 September 30, 1997, are primarily related to
investments in electric facilities.
<PAGE>
- 8 -
7. The Company and its parents have spent considerable time and
effort over the past several years on the issue of the year
2000 software compliance, and the effort is continuing.
Certain software has already been made year 2000 compliant by
upgrades and replacement, and analysis is continuing on
others, in accordance with a schedule planned to permit the
Company and its parents to process information in the year
2000 and beyond without significant problems. Expenditures
for the software modifications and upgrades are not expected
to have a material impact on the Company's results of
operations or financial position.
<PAGE>
- 9 -
ALLEGHENY GENERATING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
The changes in revenues 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.
Effective June 1, 1995, the Federal Energy Regulatory
Commission gave approval for the Company to add a prior tax
payment of approximately $12 million to rate base. In September
1997, the Company received a tax-related contract settlement of
$8.8 million of taxes related to the $12 million added to rate
base in 1995. The 1997 settlement amount was recorded as a
reduction to plant and was removed from rate base.
The increase in other income, net, in each of the third
quarter and first nine-month periods of 1997 was due to interest
on the refund on the tax-related contract settlement (see above).
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. The Company does not expect
any requests for a change to be filed during the 1997 notice
period; therefore, the Company's ROE would remain at 11%.
<PAGE>
- 10 -
ALLEGHENY GENERATING COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended September 30, 1997
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, 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)
November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,026
<CURRENT-ASSETS> 29,731
<PP&E> 828,573
<DEPRECIATION> 189,026
<TOTAL-ASSETS> 687,036
<CURRENT-LIABILITIES> 84,330
<BONDS> 158,712
0
0
<COMMON> 1
<OTHER-SE> 199,263
<TOTAL-LIABILITY-AND-EQUITY> 687,036
<SALES> 60,288
<TOTAL-REVENUES> 60,288
<CGS> 3,612
<TOTAL-COSTS> 20,045
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,765
<INCOME-PRETAX> 37,533
<INCOME-TAX> 9,374
<INCOME-CONTINUING> 28,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,159
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
